Analysts remain bullish on Tenaga Nasional Bhd reaffirming they BUY rating with a target price of RM16.70, reflecting a potential upside of 14%. They noted that the company's market capitalisation currently stands at RM14.60, with an estimated average daily turnover of RM156 million. RHB Investment Bank Bhd (RHB Research) said it has a strong belief in TNB's ability to deliver stable returns, particularly from its flagship 2.5GW Hybrid Hydro-Floating Solar Photovoltaic (HHFS) project under the National Energy Transition Roadmap (NETR).
It also emphasised the positive outlook following a recent technical visit to the Chenderoh hydropower plant in Perak. TNB Genco's contracted capacity totals 13.8GW, including 2.5GW from hydropower, which is integral to the company's strategy. The Chenderoh plant, with a capacity of 40.5MW, is currently operating at full load, contributing significantly to the baseload supply for the grid. The plant is one of seven within the Sungai Perak scheme, which collectively represents a substantial portion of TNB's hydropower capacity.
The HHFS project is set to be constructed in phases between 2026 and 2040, and it is projected to avoid emissions of 3.1 million tonnes of CO2 equivalent per year, accounting for approximately 8% of TNB's Scope 1 and 2 emissions in FY23. Notably, Chenderoh has been selected as Phase 1 of this project, which could generate up to 70MW of floating AC solar power. The development is already in an advanced stage, pending necessary regulatory approvals, with construction slated to commence in the first quarter of 2025 and estimated to last 15 to 20 months. TNB aims for a high single-digit internal rate of return (IRR) from this initiative, although the immediate earnings impact is expected to be minimal.
In addition, RHB noted that TNB's Hydro Life Extension Programme aims to refurbish six hydropower plants within the Sungai Perak area, with a combined capacity of 649MW. The investment cost for this initiative is projected at RM5.8 billion, with anticipated annual EBIT returns of RM200 million. Power purchase agreements have been established with tariffs ranging from RM0.45 to RM0.71 per kilowatt-hour, indicating strong financial prospects. The IRR for this project could potentially reach double digits over a 40-year contract tenure.
Looking ahead, RHB believes TNB is expected to benefit from ongoing upgrades in its transmission and distribution assets, particularly in response to rising energy demands from emerging data centre developments. While the outlook remains optimistic, potential risks include higher operating costs and unexpected outages at power plants. Nevertheless, the consensus among its researchers continue to favour TNB's strategic initiatives and robust market positioning.
