KUALA LUMPUR (July 21): CGS-CIMB has maintained its “buy” call on utilities giant Tenaga Nasional Bhd (TNB) at RM9.76, with an unchanged target price (TP) of RM13.40, as the utilities provider is in the midst of an environmental, social and governance (ESG) transition.

In a report on Monday, the research house highlighted that TNB is proposing RM25 billion regulated capital expenditure (capex) for the upcoming Regulatory Period 3 (RP3, 2022-2024), which is higher than RP2’s approved capex of about RM19 billion, with more regulated capex to be allocated to facilitate the energy transition (from RP2’s 12% of total capex to 19% for RP3), which is beneficial to TNB’s natural monopoly position as all of these ongoing investments will support TNB’s earnings in the future.

It said TNB’s development on the sustainability pathway is expected to be announced in the second half of 2021 (2H21), and is being carried out in response to investors’ ESG concerns surrounding emissions, affordability of electricity and the government’s growing emphasis on environmental sustainability.

The research house said with its natural monopoly position in Malaysia’s transmission and distribution, TNB will likely benefit from this trend as these ongoing investments should be part of its regulated asset base, supporting its regulated earnings in the future.

It said the existing grid infrastructure can dispatch up to 27% of renewable energy (RE). Currently, only 5% of its dispatched power comes from RE.

“We expect TNB to benefit from: i) growing opportunities in RE as it expands its RE capacity domestically/internationally as a power generator; ii) potential thermal plant bidding in the future due to growing electricity demand from digitalisation; and iii) robust investment in electricity grids to cater to the energy transition, which will grow its regulated asset base.

“Our TP of RM13.40 is based on 15 times FY22F P/E (financial year ending Dec 31, 2022 forecast price-earnings) (TNB’s five-year historical P/E), which reflects the stock’s trading range during the IBR period.” said the research house.

At 10.36am, TNB had shed three sen to RM9.37, valuing it at RM55.72 billion.

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