TNB downgraded to 'Hold' on continued weakness in domestic power generation

KUALA LUMPUR: Hong Leong Investment Bank (HLIB) research has downgraded its call on Tenaga Nasional Bhd's (TNB) stock to "Hold", with the loss-making domestic power generation segment expected to see continued pressure.

It said while TNB is a strong beneficiary of National Energy Transition Roadmap (NETR), it expects a longer than anticipated gestation period for TNB to show strong earnings growth under NETR.

In the meantime it will have to contend with its domestic power generation segment's continued weakness.

It has an unchanged target price of RM11 for TNB.

TNB's core earnings for the fourth quarter of financial year 2023 came in at RM644.7 million, bringing the total for FY23 to RM3.3 billion.

The results was within HLIB research's expectations but made up only 87 per cent of consensus.

The weak results was mainly due to the loss-making domestic power generation segment as well as higher non-fuel operational costs.

On outlook, the investment bank said power demand growth remains healthy at +3.6 per cent year-on-year (YoY) for Peninsular and +7.6 per cent YoY for Sabah Electricity Sdn Bhd (SESB) in FY23. It expects demand to sustain into FY24 in tandem with the country's continued economic growth of +4.8 per cent YoY, as per HLIB research's forecast for 2024.

"However, the benchmarked growth is only +1.7 per cent YoY per annum under Regulatory Period 3 (RP3) framework (2022-2024). "TNB is in the midst of finalising details for RP4 (2025-2027), which may allow for higher allocated regulated capex in line with the government's NETR," HLIB research said.

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