KUALA LUMPUR: PublicInvestment Bank Bhd (PublicInvest) expects Tenaga Nasional Bhd (TNB) to increase its forecast base sales in the upcoming 2025-2027 regulatory period (RP 4) to reflect current demand and its prospects throughout the cycle.
PublicInvest has raised its earnings forecast for FY25 by 9.9 per cent in anticipation of this.
It forecasts 6.5 per cent lower earnings in FY26 however as it assumes lower annual sales growth set by the regulator.
It maintains its Neutral call on the stock with a higher target price of RM13.00 from RM11.50.
PublicInvest said it expects RP4 to facilitate National Energy Transition Roadmap's (NETR) long term direction, by focusing on grid investment, which is part of TNB's regulated business segment.
"Hence, we believe a step-up in new forecast base sale would be included in RP4 to address the funding gap of required capital expenditure (CAPEX) of RM90 billion for the next six years," it said in its note today.
The establishment of Energy Exchange Malaysia (ENEGEM) to facilitate green energy export is also expected to to provide an additional revenue stream for TNB.
Electricity demand increased by 9.6 per cent year-on-year (YoY) to 31,899 gigawatts (GWh) in the first quarter ended Mar 31, 2024 (Q1FY24), mainly bolstered by domestic (+16.8 per cent) and commercial (+11.2 per cent) segments. This exceeded forecasted base sales set in RP3, (29,546 GWh) by 8.0 per cent.
PublicInvest said despite the higher units sold, TNB is required to return the excess under Incentive Based Regulation (IBR) framework via both revenue cap and price cap mechanism, which was pre-set based on Return on Regulated Asset Based (RoRAB) and WACC.
" We reckon this non-equitable regime would pose a risk in maintaining the system and limiting grid enhancement to support the National Energy Transition Roadmap (NETR)," the firm said in its note today.
TNB registered a slightly weaker Q1FY24 core net profit of RM918.8 million due to losses in the generation segment amid an outage in the Manjung 4 plant and higher losses than the negative fuel margin in 1QFY23.
PublicInvest said overall, the company's results broadly met its own and consensus full year estimates at 23 per cent.
