Tenaga Nasional Berhad - Up to 2GW Additional ESAs for Data Centres Expected by Year End
Thu, 29-May-2025 06:50 am
by Ong Tze Hern • Apex Research

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TENAGA (5347)

Target Price (RM)

16.04

Recommendation

Buy

  • The electricity demand slowdown in 1QFY25 is temporary, with improving demand observed in April and May 2025. Notably, a peak demand record of 20,752MW was achieved on 27 May.

  • In 1QFY25 alone, TENAGA has already signed 5 ESAs for DC projects with a combined maximum demand of 666MW, and anticipates an additional 10 ESAs for DC projects (averaging 150MW-200MW each) to be signed by year-end.

  • The recent RFP by the EC seeks up to 8GW of capacity across two categories, which TENAGA intends to bid for both.

  • Management reaffirmed the RM20bn Capex target for 2025, comprising RM9bn-10bn of regulated base Capex, RM1bn-2bn of regulated contingent Capex, and RM8bn of unregulated Capex.

  • No change to earnings forecasts. Reiterate BUY with an unchanged TP of RM16.04 based on DCF valuation (WACC: 7.1%, g: 2.0%).

 

We left TENAGA’s analyst briefing with the following key takeaways:

 

1QFY25 Electricity Demand Slowdown a Temporary Hiccup. In 1QFY25, electricity demand for Peninsular Malaysia declined 1.2% yoy and 3.0% qoq (Figure 1). Management attributed the yoy slowdown to lower demand in the electronics manufacturing subsector within the Industrial segment and weather-related reductions in consumption for Domestic segment. However, TENAGA believes the slowdown in 1QFY25 is temporary and has observed improving demand in April and May 2025. Notably, a new peak demand record of 20,752MW was achieved on 27 May 2025, marking the third such record for the month. TENAGA also reaffirm its electricity demand growth projection at 3.5%-4.5% for the year.

 

Up to 2GW Additional ESAs for Data Centres Expected by Year End. Despite concerns over a potential slowdown in data centre (DC) growth in Malaysia, TENAGA has already signed 5 Electricity Supply Agreements (ESAs) for DC projects with a combined maximum demand of 666MW in 1QFY25 alone. Management does not anticipate any slowdown and expects an additional 10 ESAs for DC projects (averaging 150MW-200MW each) to be signed by year-end.

 

Up to 8GW capacity from recent RFP by EC. Given the robust demand for electricity, the Energy Commission’s (EC) recent Request for Proposal (RFP) for gas-fired power generation capacity is timely to ensure a healthy reserve margin, which currently stands at 33%, within the 20%-35% recommended by the IEA. To recap, the RFP contains 2 categories: Category 1 for extension of existing or additional generation capacity, and Category 2 for new generation capacity. Management disclosed that the RFP seeks up to 8GW of capacity across these two categories. From TENAGA’s perspective, they intend to bid for both. Potential projects include the Gelugor plant (SLA expired in Aug 2024, based on GSO website) and the Putrajaya plant (SLA expiring in Aug 2025) for Category 1, as well as new capacity on the land beside Connaught Bridge plant for Category 2. Fortunately, the RFP by the EC will not affect initial Letter of Notification (iLON) already received for the Paka Repowering project. 

 

Reaffirmed RM20bn Capex Target for 2025. During 1QFY25, 34% of the base capex forecasted for 2025 was utilised, along with RM128m of contingent Capex. The recovery mechanism for contingent Capex is expected to be finalised in 2HFY25, with management aiming to secure an automated recovery mechanism. One viable option we highlighted in our previous report is a revenue-cap adjustment, which would allow TENAGA to increase its allowed revenue without affecting end-user tariffs. Management has reaffirmed its RM20bn Capex target for 2025, comprising RM9bn-10bn of regulated base Capex, RM1bn-2bn of regulated contingent Capex, and RM8bn of unregulated Capex. Additionally, management remains confident of securing 70% of the contingent Capex over the next three years of RP4.

 

Earnings Revision. No change to our earnings forecasts.

 

Valuation and Recommendation. Reiterate BUY with an unchanged TP of RM16.04 based on DCF valuation (WACC: 7.1%, g: 2.0%). No ESG premium or discount has been applied, given the Group’s three-star ESG rating. We remain positive on TENAGA’s outlook, driven by rising energy demand, ongoing energy transition under the NETR, which requires significant grid investment and modernisation, and potential growth from low-carbon electricity exports to Singapore.

 

Risk. Sharp plunge in coal prices, unplanned shutdowns of power plants, weakening of Ringgit, policy risks.

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