What You Need to Know Before TNB's Upcoming Q2 Earnings Report?

The company will release the second quarter earnings report of financial year 2024 (As of June 30, 2024) on August 28, according to Bloomberg.

● It is projected to achieve a revenue of RM15.36 billion, representing a year-over-year increase of 15.29%.

● Consensus basic adjusted EPS is RM0.16, an increase of 189.47% compared to the same period in the previous year.

● The average price target for TNB is RM16.10, suggesting a potential increase of 16.16%.

Electricity demand growth and GDP expansion share a strong correlation, a pattern that is evident in Malaysia's recent economic performance. The country's GDP witnessed a significant rise of 5.9% in the April-June quarter compared to the same period the previous year, outpacing the 4.2% growth recorded in the earlier quarter. This latest surge is the highest rate of economic growth seen since the final quarter of 2022, suggesting a corresponding escalation in the potential demand for electricity to fuel the burgeoning economy.

The AI surge is propelling a boom in data center construction across Malaysia, driving up the demand for electricity. In FY2023, TNB successfully completed data center projects amounting to roughly 635MW, and it has nine additional projects, estimated to contribute about 700MW, slated for completion within the current year. Of these, two substantial projects, representing 535MW, have already been finalized in the first quarter, which ended on March 31, 2024 (1QFY2024).In the first quarter, TNB has reported a striking 9.6% rise in electricity demand for the quarter.

Following the Malaysian government's launch of the acclaimed National Energy Transition Roadmap, TNB has recalibrated its strategy to keep pace with the rapid shifts in the local energy landscape. The company's capital investments are now largely in sync with the government's Roadmap, with renewable energy at the helm of TNB's capacity growth.

TNB Genco, a fully-owned subsidiary of TNB, is currently trialing a floating solar panel installation at the Nenggiri dam, an initiative that is projected to increase electricity generation by up to 1,000MW, in addition to the existing 300MW from the hydro project.

At present, TNB operates three major hydroelectric projects in Malaysia: the Sungai Perak Hydro Scheme with a capacity of 1,249.1MW, the Cameron Highlands Scheme at 622MW, and the Kenyir Scheme at 665MW. Further expansion of its renewable energy assets is under consideration, with plans for two additional large hydroelectric power plants through TNB Genco. The construction of the Nenggiri hydro plant is progressing, currently at 40% completion.

CGS International views the government's energy transition strategy as a positive driver for TNB's profitability, suggesting that the move towards a more sustainable energy mix may provide a boost to the company's bottom line.

The implementation of the Incentive Based Regulation (IBR) is revolutionizing the utility sector, compelling companies to boost their operational efficiencies and heighten transparency in the delivery of electrical services. This system ensures that utility firms adhere strictly to their projected expenditures while supplying power to consumers. As the second ASEAN nation to adopt the IBR, following in the footsteps of the Philippines, Malaysia is witnessing a plethora of benefits from this regulatory model.

One of the most significant impacts of the IBR is its role in dismantling longstanding issues related to cost inefficiencies, the opacity of tariffs, and the complexities surrounding power purchase agreements. Under the IBR framework, TNB has been given the leeway to recoup its fuel expenses and secure a fair return rate on its capital investments. CSGI analysts are of the opinion that TNB's investments are set to yield more robust profits within the purview of the IBR.