KUALA LUMPUR: TENAGA Nasional Bhd (TNB), a favourite stock among analysts, is reshaping itself under its Strategic Plan 2015-2025 in a bid to become one of the world’s top 10 utility companies by market capitalisation.
Group president and chief executive officer Datuk Seri Azman Mohd said the 10-year plan addressed the ways for TNB to retain its position in the domestic market and grow its presence internationally in selected regions.
The group, which eased two sen to close at RM13.98 on Friday for a market capitalisation of RM79.02 billion, has targeted expansion in Southeast Asia, South Asia and the Middle East.
TNB currently has exposure in Turkey, Saudi Arabia, Kuwait, the United Arab Emirates, Pakistan, Brunei, Thailand, Indonesia and Vietnam.
The group recently completed its US$300 million (RM1.3 billion) acquisition of a 30 per cent stake in GMR Energy Ltd, marking its entry into India’s rapidly expanding power sector.
Analysts are positive on the deal, saying India’s compound annual growth rate of demand for electricity is growing six to seven per cent annually.
Azman disclosed the 10-year blueprint in TNB’s latest annual report, saying the group must stay relevant by anticipating changes and responding to industry trends to ensure sustained growth over the next decade.
Although it was already Malaysia’s leading energy company and a rising force in Asia, he said TNB must stay relevant by anticipating changes and responding to industry trends.
“For our next phase of development, we have identified a clear goal to emerge as one of the world’s top 10 utility companies by market capitalisation by 2025. Although ambitious, there has never been a better time to reach for this goal. The world is changing at unprecedented speeds,” he said.
TNB chairman Tan Sri Leo Moggie said the new plan would set the group on a fresh growth trajectory driven by mergers and acquisitions at home and abroad.
“However, I would like to reiterate that the board will ensure the company evaluates new endeavours based on shareholder interests.”
The blueprint is based on four major trends: the shift in economic power to Asia, technology disruptions, the end of cheap capital and evolving regulatory developments.
“We believe that these trends will substantially reshape our future, yet present exciting opportunities. Capitalising on these trends will enable TNB to unlock new growth areas, win a new generation of customers, realise our regional ambitions and unleash greater productivity.”
TNB is already among the world’s top 10 players, indirectly.
The custodian of domestic power generation, transmission and distribution has helped Malaysia to be ranked eighth out of more than 188 nations when it comes to delivering electricity supply.
The ranking by the World Bank assesses the efficiency of the countries’ connection process, power reliability and transparency of electricity tariffs.
In its financial year ended August 31, TNB’s net profit grew to RM7.3 billion from RM6.06 billion previously.
Group revenue edged up to RM44.53 billion from RM43.29 billion, helped by a four per cent increase in electricity demand in Peninsular Malaysia.
The group said last month it would change its financial year-end to December 31 from August 31.
Meanwhile, analysts say they like TNB for its dividend catalyst, relatively under-geared balance sheet at 0.35 time, overseas expansion, which provides scope for stronger growth in the mid-term, and strong earnings visibility.
MIDF Research said TNB’s upcoming capital optimisation exercise and favourable resolution of its RM2 billion tax issue with the Inland Revenue Board were key catalysts over the next 12 months.
MIDF Research has a “buy” call on TNB, with a target price of RM16.80, while Public Investment Bank Bhd kept the stock on “outperform”, with a RM16.16 target price.
TNB shares have gained nearly five per cent so far this year, outperforming the benchmark FTSE Bursa Malaysia KLCI, which declined about three per cent.
Analysts are not worried about TNB’s exposure to the foreign exchange rate, given that its foreign currency denominated loans accounted for just 17.4 per cent of the total loans as at the end of its financial year ended August 31.
“About 17 per cent of TNB’s total debt of RM34 billion comprises foreign currency and the bulk of this is made up of US dollar and yen borrowings, which are in almost equal amounts,” said MIDF Research.
Technically, the firm said TNB might be impacted by the strength of the US dollar but benefited from the weakness of the yen.
MIDF Research took comfort in the fact that the majority of the
borrowings were long term in nature (96 per cent of total debt are long term).
Hence, the impact from the currency fluctuations, which were expected to be temporary, would not be immediately realised.
According to Bloomberg data, 22 of 25 research houses have a “buy” call on TNB. The rest recommended a “sell”, with target prices ranging from RM12.50 by Credit Suise to RM20 by JP Morgan.