• TENAGA's 6MFY26 core net profit of RM2.09bn (+9.9% yoy) accounted for 45.6% of our FY26F forecast and 43.2% of consensus estimates, which is below market consensus.
• We stay constructive on TENAGA's earnings, underpinned by continued demand growth led by data centres and an expanding regulated asset base, though the Genco fuel margin will remain volatile while delivered coal runs above the ACP and Hormuz-driven LNG keeps Tier 2 gas costs elevated into 2HFY26.
• We raise our FY26F/FY27F core net profit forecasts by 8.7%/7.2% to RM4,979.1m/RM5,023.4m and trim FY28F by 2.4% to RM5,601.4m.
• Maintain BUY with a lower TP of RM16.37 (previously RM16.77), derived from our DCF valuation (WACC 7.3%, terminal growth 2.0%).
Broadly In Line. TENAGA's 6MFY26 core net profit (CNP) of RM2.09bn (+9.9% yoy) came in at 45.6% of our full-year forecast and 43.2% of consensus, which is in line with our expectations but below market consensus. While the 45.6% completion is on track against our forecast, market consensus had assumed an even 1H/2H split, so at 43.2%, it reads as a shortfall to expectations. CNP is derived after excluding net exceptional losses of RM40.6m, comprising of forex loss of RM19.8m, receivables impairment of RM29.7m, inventories obsolescence of RM13.6m, PPE impairment of RM2.5m, contract asset impairment of RM0.9m and other items of RM0.2m, partly offset by a RM26.1m gain on investment in unquoted debt securities. 2QFY26 CNP of RM929.4m grew 12.0% yoy but fell 19.8% qoq as fuel margin turned negative.
Dividend. TENAGA declared an interim dividend of 25.0 sen per share for 2QFY26, bringing 6MFY26 DPS to 25.0 sen, unchanged yoy. This is in line with our full-year DPS assumption of 51.0 sen, implying a yield of about 3.7%.
YoY. 2QFY26 CNP rose 12.0% yoy to RM929.4m. Revenue grew 8.3% yoy to RM18.24bn on an 8.4% increase in units sold, while the AFA/ICPT position swung to a positive RM514.9m (2QFY25: negative RM589.3m). This was largely offset by a 20.4% rise in operating expenses (excluding D&A) to RM13.69bn, led by TNB fuel costs (+35.0% yoy to RM5.38bn) on higher coal and gas prices and non-TNB IPP costs (+10.8% yoy to RM4.77bn). EBITDA rose 3.4% yoy but the margin narrowed 3.3 ppts to 28.0%, and a 6.9% increase in depreciation left EBIT 1.4% lower at RM2.09bn.
YTD. 6MFY26 CNP rose 9.9% yoy to RM2.09bn on a 7.5% increase in revenue to RM35.34bn, underpinned by 7.7% demand growth to 70,328 GWh. Genco was the key swing factor, posting PAT of RM410.5m as the fuel margin swung to a positive RM12.3m compared to negative RM69.6m during 6MFY25, alongside improved plant performance. Reported pre-tax profit fell 10.7% yoy to RM2.82bn, mainly reflecting a smaller net forex gain of RM11.3m, a net loss on impairment of financial instruments of RM61.4m and a 43.9% drop in finance income. The regulated asset base expanded to RM78.4bn on regulated capex of RM7.10bn, while net gearing eased to 39.9%.
QoQ. CNP fell 19.8% qoq to RM929.4m despite a 6.6% increase in revenue to RM18.24bn. The drag came from fuel, with total fuel and power purchase costs up 30.9% qoq to RM10.15bn as the average delivered coal price rose to USD115.7/MT from USD100.3/MT in 1QFY26 and the Tier 2 gas reference price climbed to RM62.4/mmbtu from RM44.9/mmbtu in 1QFY26. EBITDA slipped 4.8% qoq and EBIT fell 14.9%, while Genco PAT dropped 77.0% qoq to RM76.8m as the fuel margin turned negative at RM59.7m. A lower effective tax rate of 27.7% (1QFY26: 30.5%) also partly cushioned the decline.
Electricity Demand Growth Driven by Commercial Sector and Data Centres. 2QFY26 electricity demand grew 8.4% yoy to 36,618 GWh, extending the 7.0% growth recorded in 1QFY26. Growth was led by the commercial segment (+14.3% yoy), reflecting data centre, retail and business services consumption, while the "Others" segment jumped 140.5% yoy on higher offtake from water and sewerage operators, agriculture, mining and public lighting. Domestic demand grew 8.1% yoy. The industrial segment was the sole laggard, contracting 6.3% yoy as Peninsular Malaysia peak demand reached a record 22,014 MW.
Outlook. Earnings should stay supported by continued demand growth, led by data centres, and by a regulated asset base that has expanded to RM78.4bn, which anchors regulated earnings visibility. The monthly AFA mechanism keeps fuel cost recovery timely for the regulated business, though the Genco fuel margin will remain volatile while delivered coal prices run above the ACP. Key medium-term drivers are the 10GW generation pipeline, secured data centre demand and the ASEAN Power Grid interconnections. Gas is now the swing input at 39.2% of 1HFY26 industry generation, with TNB's gas bill up 34.3% qoq to RM4.23bn in 2QFY26, as the Hormuz conflict has kept LNG elevated, so Tier 2 gas has not eased from its 2QFY26 level going into 2HFY26. As the AFA recovers this, the earnings impact boils down to a timing issue, while we remain cautious on the fuel bill as the situation remains uncertain.
Earnings Revision. Following our model updates and change of analyst, we raise our FY26F/FY27F CNP by 8.7%/7.2% to RM4,979.1m/RM5,023.4m and trim FY28F by 2.4% to RM5,601.4m, from RM4,580.6m/RM4,684.4m/RM5,738.7m previously. The upgrade mainly reflects higher EBITDA assumptions, which were partially offset by higher depreciation and net finance costs.
Valuation and Recommendation. We maintain our BUY rating with a lower Target Price of RM16.37 (from RM16.77), derived from our DCF valuation, which netted off higher net debt of RM88.9bn (FY26F) due to rising RP4 capex and finance costs grow borrowings faster than the near-term EBITDA upgrade adds value, while our WACC (7.3%) and terminal growth (2.0%) are unchanged. Tenaga remains the primary beneficiary of Malaysia's energy transition, supported by strong data centre demand pipeline and its leadership in the ASEAN Power Grid.
Risk. Sustained rise in coal prices above the ACP, unplanned shutdowns of power plants, weakening of Ringgit, slower demand growth, regulatory and policy risk.
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| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.029059 | 4.061288 |
| EUR | 4.678261 | 4.683031 |
| CNY | 0.601267 | 0.601882 |
| HKD | 0.513945 | 0.517555 |
| SGD | 3.163772 | 3.186125 |