TENAGA: Utility Reports Strong Earnings Amid Operational Efficiencies and Capex Acceleration

A major utility provider reported a robust financial performance for the fourth quarter of FY25, with core profit after tax and minority interests (PATAMI) reaching RM989.1 million. This marks a significant increase of 6.0% quarter-on-quarter and an impressive 105% year-on-year, largely attributed to enhanced cost management and strategic asset recovery. On a full-year basis, core PATAMI amounted to RM3,868.9 million, broadly aligning with internal estimates at 97.3%, though slightly below consensus expectations at 90.6%. The company’s regulated business demonstrated resilience, benefiting from the Incentive-based Regulation framework (Regulatory Period 4, RP4), which provides a stable earnings environment crucial for its substantial capital expenditure program.

Performance Highlights

The strong quarterly performance was primarily driven by a lower effective tax rate, resulting from the utilization of investment allowances under Section 7B and the resolution of prior-year tax assessments. Additionally, the generation arm (GenCo) significantly recovered its earnings, with FY25 PAT improving to RM421.4 million from RM178.9 million in FY24. This recovery was spurred by the resumption of the 1,010MW Manjung 4 coal-fired power plant following a prolonged outage in the previous fiscal year. Improved generation availability and favorable fuel margin dynamics further bolstered profitability throughout the year.

Operational Dynamics and Challenges

Despite the overall positive financial results, the company faced challenges in electricity demand growth. Peninsular Malaysia’s electricity demand expanded by 2.3% in FY25, falling slightly short of the earlier 2.8% guidance. This softer growth was mainly due to persistent structural weakness in the industrial segment, particularly the iron and steel sector, which contracted by 5.8% year-on-year. However, this was partially offset by strong commercial growth of 10.0%, boosted by increasing data center and services-related loads. The resolution of tax uncertainties and improved liquidity, following the shift to a monthly Automatic Fuel Adjustment (AFA) mechanism, have further solidified the company’s financial position.

Future Outlook and Capex Acceleration

The utility is well-positioned for an accelerated capital expenditure (capex) program in the coming years. In FY25, RM12 billion was invested in regulated capex, in line with guidance. With the improved financial flexibility, the company is set to accelerate its RM42.82 billion RP4 regulated capex execution, including contingent capex, in FY26. This significant investment will primarily focus on expanding the transmission network, modernizing the grid, and reinforcing distribution infrastructure to support evolving demand requirements, especially from the growing commercial and data center sectors. The sustained execution of this capex program is expected to drive Regulated Asset Base (RAB) growth, which will further underpin long-term earnings stability under the RP4 framework.