TENAGA: Utility Reports In-Line H1 Performance Amid Cost Headwinds, Stronger Second Half Expected

Leading utility company, Tenaga Nasional, has reported its core net profit for the second quarter of financial year 2025 (2QFY25) at RM793.5 million, contributing to a first-half (1HFY25) total of RM1.9 billion. These results were deemed to be in line with both the investment bank’s and market consensus expectations, despite a sequential and year-on-year decline in profitability. The company anticipates a stronger second half of FY25, driven by the finalization of earnings recovery for contingent capital expenditure. The board has also declared a first interim dividend of 25 sen per share.

Performance Review

On a quarter-on-quarter (QoQ) basis, core profit saw a 28.4% decline, primarily due to higher operating costs, including fuel, maintenance, staff, and general expenses, alongside increased net finance expenses and depreciation charges. Similarly, the year-on-year (YoY) performance reflected a 32.5% drop in core profit, with the first half experiencing a 16.0% decline compared to the previous year. Key factors for the YoY and year-to-date (YTD) contraction included elevated staff costs, repair and maintenance, general expenses, depreciation charges, and the impact of the cessation of Reinvestment Allowance effective 2025.

Outlook and Growth Drivers

Looking ahead, the outlook for the second half of FY25 remains positive. Power demand in Peninsular Malaysia has shown a healthy recovery, growing 2.0% YoY in 2QFY25. The commercial segment, in particular, demonstrated robust growth of 6.5% YTD, buoyed by the expanding data centre, business, and retail sectors. Peninsular Malaysia also hit a new peak demand of 21.0GW in May 2025. Tenaga is strategically positioned to capitalise on this strong electricity demand, supported by a substantial RM42.8 billion capex allocation, which includes a base of RM26.6 billion and a contingent RM16.3 billion, aimed at significantly expanding its regulated asset base. With stable coal prices, major fluctuations in fuel margin recognition are not expected in FY25. The company is also noted as a key contender for upcoming tenders from the Energy Commission for the extension and new contracts for gas-fired power plants.

Investment Recommendation

TA Securities has reiterated its BUY recommendation on Tenaga Nasional, with an unchanged discounted cash flow (DCF)-derived target price of RM16.20. The bank believes the utility company is well-positioned to leverage resilient economic growth in 2025 and benefit from the higher regulated asset base under the new RP4-5 (2025-2030), anticipating continued expansion of data centers in Malaysia.