TENAGA: Core Earnings Outperform on Cost Controls and Regulatory Clarity

A major utility provider has reported a robust third quarter for FY25, with core net profit significantly exceeding previous periods, driven by strong cost management and a favourable regulatory environment. The positive performance has led to a reaffirmation of future earnings forecasts and an optimistic investment outlook.

Performance Review

The utility firm recorded a core net profit of RM933.1 million for 3QFY25, representing a 5.8% increase quarter-on-quarter and a threefold rise year-on-year. This strong quarterly showing brings the nine-month FY25 core earnings to RM2,879.2 million, which aligns with 72.5% of the full-year estimate, although it slightly trailed broader market consensus.

The improved financial results were primarily attributed to higher electricity sales and a more favourable fuel cost environment. Total generation costs remained largely flat on a quarterly basis and were significantly lower year-on-year, despite an increase in demand, supported by reduced delivered coal prices. While overall demand growth for 9MFY25 remained modest at 1.6%, falling short of the company’s revised target of 2.8-3.8%, the commercial segment was a key growth driver, expanding by 9.8% year-on-year. Conversely, the industrial segment experienced a 3.6% year-on-year contraction, contributing to the overall subdued demand.

Strategic and Regulatory Boost

A significant development during the quarter was the Ministry of Finance’s (MoF) formal approval of the company’s Reinvestment Allowance (RIA) application under Schedule 7B. This approval clarifies that future qualifying capital expenditures can be deducted against taxable income, effectively removing a major source of regulatory and tax uncertainty. Although a prior-year tax provision of RM558.4 million was made as a result of a historical RIA claims reassessment, the MoF’s decision establishes a clear and consistent tax position for subsequent years.

This regulatory clarity is expected to strengthen cash flow visibility under the current regulatory period (RP4) and is crucial for supporting the company’s ambitious capital expenditure program, particularly for modernising its grid and upgrading distribution networks.

Outlook

With revenue resilience under the RP4 framework continuing to safeguard cost recovery, the company is well-positioned to fund its extensive capital expenditure programme. Analysts have maintained their FY25-FY27 earnings forecasts, citing the positive impact of the RIA approval and steady operational performance. The firm’s long-term prospects are considered favourable, with strong fundamentals supporting continued growth and infrastructure development.