Analysts have offered mixed views on Tenaga Nasional Bhd (TNB) following the release of its 3QFY24 financial results. Maybank Investment Bank (Maybank IB) maintained a HOLD rating with an unchanged target price of RM14.00, citing the expected sequential decline in earnings due to higher general expenses. Similarly, MIDF Amanah Investment Bank Bhd (MIDF Research) retained a NEUTRAL stance with a slightly higher target price of RM14.20, while RHB Investment Bank Bhd (RHB Research) reiterated a BUY recommendation, albeit lowering its target price to RM16.60.
Maybank IB noted that TNB's 3QFY24 core net profit of RM634 million declined by 35% year-on-year and 58% quarter-on-quarter, primarily due to higher operating costs, depreciation, and lower other income. This brings the utility giant's cumulative 9MFY24 core net profit to RM3.2 billion (+4% year-on-year), which met 84% of Maybank's full-year forecast. The research house highlighted continued strong electricity demand growth (+6.1% year-on-year) and an increase in coal generation contribution to 58.3% in the quarter. However, it flagged uncertainties over future general expenses and grid capex, maintaining its cautious outlook.
MIDF Research similarly noted the cost challenges, stating that higher impairments and operating costs offset the 7.5% revenue growth achieved over the nine months. Despite this, TNB's domestic and commercial segments showed robust demand, with additional gains from UK operations. MIDF sees TNB trading fairly at a 16.9 times FY25F price-to-earnings ratio, reflecting minimal upside in the current regulatory and cost environment.
Conversely, RHB Research maintained optimism regarding TNB's position as a proxy for Malaysia's energy transition. While acknowledging the 3Q profit miss due to higher non-fuel operating expenses, RHB highlighted TNB's renewable energy capacity of 4.4GW and anticipated tariff restructuring under Regulatory Period 4 (RP4) as key catalysts for future growth. The research house also noted the company's improving balance sheet, with net debt to EBITDA at 2.59x in 3QFY24 compared to 3.17x a year ago, and growing foreign investor confidence, reflected in increased foreign shareholdings to 18.9% in October.
Both Maybank IB and RHB Research see potential for growth in TNB's energy transition initiatives, including renewable energy expansion and export tariff reforms, while cautioning against regulatory uncertainties and elevated operating costs. As the sector evolves, TNB's focus on cost management and capitalising on energy transition opportunities will be pivotal in shaping its long-term performance.
