All RIA-related disputed taxes for YA 2003–2024 have been fully settled, and prior-year financial statements have been restated to reflect the actual tax expense, eliminating the need for further provisions. Following the MoF’s approval of Investment Allowance (IA) under Schedule 7B (quantum undisclosed), the effective tax rate is expected to trend lower as the approved IA is utilised to offset future taxable income.
Under Category 1 of the RFP, TENAGA has received LON for the extension of the Gelugor, Putrajaya, and Tuanku Jaafar power plants, totalling 1,262MW of capacity. These extensions enhance earnings visibility and strengthen Genco’s medium-term outlook.
DC demand remains robust, with an estimated 700MW of new ESAs signed in 3QFY25.
FY25 electricity demand growth guidance has been revised to 2.8%, the lower end of the earlier 2.8–3.8% range, but remains consistent with RP4 projections.
FY25 capex guidance has been trimmed to RM15bn (RM12bn regulated, RM3bn unregulated) from RM18bn, with the RM3bn cut entirely from unregulated projects, likely due to timing deferrals into early-2026 rather than cancellations.
No changes to our earnings forecasts. The prior-year restatements relating to RIA disputes which resulted in a cumulative RM10.5bn reduction in retained earnings remain subject to further disclosure for the 2003-2023 financial statements.
Maintain BUY with an unchanged TP of RM15.77, based on DCF valuation (WACC 7.1%, g 2.0%), which implies 22x FY26F EPS.
We left TENAGA’s analyst briefing with the following key takeaways:
No Concerns on Future Tax Expense or Provision. Management clarified that all Reinvestment Allowance (RIA)-related disputed taxes for YA 2003–2024 have been fully settled, and prior-year financial statements have been restated to reflect the actual tax expense. This resulted in a cumulative RM10.5bn reduction in retained earnings, effectively removing the need for any future provisions. Following the Ministry of Finance’s approval of Investment Allowance (IA) under Schedule 7B (quantum undisclosed), TENAGA now expects a lower effective tax rate going forward as the approved IA is utilised to offset future taxable income. The timing of recognition will depend on the final approved amount. The 3QFY25 effective tax rate of 25% (2QFY25: 26.7%) reflected higher capital allowance claims from new assets and is unrelated to Schedule 7B. Management guided that the effective tax rate should trend below the earlier indicated 30% once IA utilisation commences.
LON Awarded for 1.3GW Gas Power Plant Extensions (Category 1). Under Category 1 of the RFP for gas plant extensions, TENAGA has received Letters of Notification (LON) outlining the technical and commercial terms for the extension of the Gelugor, Putrajaya, and Tuanku Jaafar power plants, with a combined capacity of 1,262MW. The extensions will involve rehabilitation works, with COD expected between 2028 and 2029. Until COD, the plants will continue operating under their existing PPAs, after which they will transition into the First-Tier Capacity Payment structure, which typically applies during the early years of a renewed PPA before stepping down into the Second-Tier over the remainder of the contract. Timelines for Category 2 (new-build gas plants) remain unchanged, with the award expected by end-2025 and COD targeted in 2028, consistent with the standard 36 to 42-month development cycle. These extensions enhance earnings visibility and support Genco’s medium-term outlook.
700MW of New ESAs Signed in 3QFY25. ESA signings accelerated in 3QFY25, with c.700MW of maximum demand secured across 4 data centre projects. This follows c.500MW in 1QFY25 and around c.40MW in 2QFY25. Focus now shifts to execution as data centres commence construction and progressively increase load. Notably, load utilisation rose to 850MW in October 2025, up from 701MW in September and 603MW in June, underscoring the structural step-up in data centre-related electricity demand.
Electricity Demand Growth Expected at Lower End of Guidance. Electricity demand expanded 1.6% YoY in 9MFY25, lifted by strong Commercial growth (+7.7%), with 5.2% contributed by data centres, 2.2% by retail and business services, and 0.2% by others (Figure 2). Management revised FY25 demand growth to 2.8%, the lower bound of the earlier 2.8–3.8% guidance. Fortunately, the revised forecast remains within RP4 projections (2025: +2.8% YoY to 134,560GWh).
Opex Expected to Rise Slightly in 4QFY25. Non-generation opex rose 1.1% QoQ in 3QFY25, driven by higher repair and maintenance costs (+9.4%), general expenses (+7.5%), and subsidiaries’ cost of sales and general expenses (+12.7%) (Figure 3). Management expects opex to increase marginally again in 4QFY25, although the impact should be manageable given the anticipated uplift in revenue moving into year-end.
2025 Capex Guidance Reduced by RM3bn. TENAGA has further revised its FY25 capex guidance to RM15bn (RM12bn regulated, RM3bn unregulated) from RM18bn previously, with the entire reduction stemming from unregulated capex. We believe the cut reflects timing deferrals into 2026 rather than project cancellations, potentially influenced by the sizable tax settlements recorded during the quarter. Meanwhile, c.RM700m of contingent capex has been deployed in 9MFY25 (versus RM250m in 1HFY25) out of the RM8.3bn regulated capex already spent. Discussions with the regulator on the recovery mechanism for contingent capex remain ongoing.
Earnings Revision. No changes to our earnings forecasts. The prior-year restatements relating to RIA disputes which resulted in a cumulative RM10.5bn reduction in retained earnings remain subject to further disclosure for the 2003-2023 financial statements. These adjustments pertain solely to historical tax recognition and do not have a material bearing on forward earnings, and therefore do not warrant revisions to our projections.
Valuation and Recommendation. Maintain BUY with an unchanged TP of RM15.77, based on DCF valuation (WACC 7.1%, g 2.0%), which implies 22x FY26F EPS. No ESG premium or discount is applied, consistent with TENAGA’s three-star ESG rating. We view the resolution of the long-standing RIA tax disputes, together with the tax-shielding effect of the approved IA, as a strong re-rating catalyst for TENAGA.
Risk. Sharp plunge in coal prices, unplanned shutdowns of power plants, weakening of Ringgit, policy risks.
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| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.116228 | 4.149111 |
| EUR | 4.800323 | 4.805223 |
| CNY | 0.584269 | 0.584863 |
| HKD | 0.528729 | 0.532442 |
| SGD | 3.178741 | 3.201165 |