TENAGA: Power Sector Firm Secures Major Gas Plant Bid, Strong Q4 Earnings Expected
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A leading power sector player has successfully secured a bid to construct a new 1.4-gigawatt (GW) gas-fired power plant, a strategic development anticipated to significantly enhance its future earnings. Investment analysts are maintaining a positive outlook, forecasting robust net profit for the fourth quarter of 2025, primarily driven by favourable tax rate adjustments.
Performance Review and Outlook
The company is slated to announce its fourth-quarter 2025 financial results on February 26th, with a briefing scheduled for the following day. Analysts project a net profit of MYR1.3 billion for the quarter, marking an impressive 81% year-on-year (YoY) increase and a 30% quarter-on-quarter (QoQ) rise. This strong forecast is largely attributed to an expected reduction in the effective tax rate (ETR) to 17%, facilitated by the recognition of tax allowances.
Strategic Developments and Future Growth
The recently awarded project involves the development of a 1.4GW gas-fired power plant in Paka, Terengganu, with an estimated commissioning timeline of 2030. The power company intends to establish a special purpose vehicle (SPV) in partnership with Aurora Power Generation for this initiative. A 15-year Power Purchase Agreement (PPA) for the plant is expected to be finalised by the year-end. This project alone is projected to contribute a 2.5% accretion to the company’s target price from 2030 onwards, based on an assumption of a 50% stake in the SPV and RM5 billion in capital expenditure.
Further growth opportunities are in active discussion, including another 1.4GW gas-fired plant (Paka Repowering project) in collaboration with AM Generation, also located in Paka. This additional project is anticipated to be finalised by year-end, aiming to address a projected 5-6GW capacity shortfall by 2030. The company is strategically positioned as a primary beneficiary of the National Energy Transition Roadmap (NETR), which is expected to provide a stable earnings foundation through its regulated framework. Furthermore, extensions for the PPAs of three existing plants (310MW Gelugor, 249MW Putrajaya, and 703MW PD1) have already been factored into previous financial projections.
Investment Recommendation and Risks
The investment bank maintains its ‘Buy’ recommendation for the power company, with a target price of MYR16.50. This target price incorporates an 18% upside from the last traded price of MYR14.00, along with a 4% ESG discount, and is pegged to 19x FY26F P/E, which is 1 standard deviation above the 3-year mean. Key downside risks that could impact the outlook include the implementation of carbon taxes, potential delays in capital expenditure approvals, and a higher effective tax rate.
