---
endpoint: analytics
pattern: Power
status: done
latency_ms: 391307
conversation_id: 4cd359bf-8cd5-4aed-a7fd-35867c61a1f4
citations: 14
created: 2026-05-31 22:25:07Z
---

# What is the investment thesis for Tenaga in the current market environment?

# Tenaga Nasional Berhad (TNB MK) — Investment Thesis

**Latest internal house view (CLSA):** Outperform (O-PF), DCF-derived 12M Target Price RM17.60 — reiterated 27-May-2025 in "Tenaga – O-PF (Fresh start)". Tenaga also sits on CLSA's Malaysia top-pick list alongside CIMB, MISC and (recently added) Westports.

> **Vintage caveat:** the latest CLSA Tenaga single-stock note in the workspace is dated 27-May-2025. Company has since reported full-year FY2025 results (year ended Dec-2025); we cross-check the thesis against those FY2025 disclosures below. As of today's date (31-May-2026), no fresher CLSA Tenaga note is in the workspace, so the RM17.60 TP is best read as the "starting-point" view, not a refreshed mid-2026 call.

---

## 1. Core Thesis — what you are buying

Tenaga is a **regulated-utility growth story stitched onto an unregulated data-centre/grid-export option**. Five legs hold up the bull case:

**(i) Regulatory Period 4 (RP4, 2025-27) gives earnings visibility with a guaranteed return.** Tenaga rolled into the new regulatory cycle with a decent set of 1Q25 numbers, and is "currently guaranteed a 7.3% net regulatory return on its regulated asset base" [1]. The framework was further strengthened in FY2025: management secured **revenue recognition for contingent CapEx similar to base CapEx**, allowing revenue to be booked in the same year expenditure is incurred (effective from 2025), and the Automatic Fuel-cost Adjustment (AFA) mechanism's recovery lag was cut from six months to one month — both materially reduce regulatory lag and improve cash-flow visibility [11].

**(ii) Capex super-cycle drives Regulated Asset Base (RAB) growth.** Under RP4, base capex is RM26.6bn; Tenaga had already deployed RM2.79bn (10.5%) in 1Q25 alone and CLSA expects spending to ramp materially as grid/transmission upgrades accelerate. On top of base, there is **RM16.3bn of contingent capex** that is likely to be triggered in 2026-27 if demand grows faster than the base case — a clean upside option not embedded in CLSA's base estimates [2]. Company-reported full-year FY2025 regulated capex landed at MYR 12bn (RM10.3bn base + RM1.7bn of contingent already utilised) [12], confirming the ramp is happening.

**(iii) Data-centre demand is the structural growth wedge.** CLSA's channel checks with Malaysia's largest live-capacity colocation operator point to **800MW total DC capacity by 2028 vs. ~300MW today** at that single operator, with Chinese end-demand particularly strong and Malaysia preferred on land availability [9]. The DC build-out drives both (a) higher unit electricity sales (commercial-segment volumes +5.1% YoY in 1Q25, offsetting industrial −5.5%) and (b) accelerated grid/cable awards, feeding back into Tenaga's RAB [1]. TNB itself disclosed **56 DC projects representing ~7.5GW of maximum demand** by end-Dec'25 (35 completed totalling 4.5GW; 14 under construction at 1.8GW; 7 ESA-signed at 1.2GW), and signed Malaysia's first Green Electricity Tariff "Green Path" agreement with ByteDance in Nov 2025 [13].

**(iv) Energy exports — the second-order optionality.** CLSA's formal investment thesis lists "power-sector reform and differentiated WACC for Regulatory Period 4" as paving the way for Tenaga to benefit from energy exports [3]; the explicit catalyst is "**development of new energy exports (especially to Singapore) and infrastructure upgrades**" [4]. Cross-border interconnection (LTMS-PIP to Singapore, planned Thailand-Malaysia link upgrade) creates a non-regulated revenue stream over time.

**(v) Re-rating mechanics: cheap valuation + improving dividend.** On CLSA estimates, Tenaga trades at **15.3x 2025CL PE / 15.0x 2026CL PE, 1.3x PB, 3.4-3.7% dividend yield, ~8.4% ROE** [7] — flagged explicitly as "inexpensive at 15.3x /15.0x 25/26CL PE with potential for contingent capex to be triggered over the next 12 months" [8]. FY2025 management delivered a **65.6% payout ratio = MYR 0.53 per share** in dividends [14], at the high end of the dividend-policy band, validating the income story.

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## 2. What the Company Confirmed in FY2025 (the cross-check)

| Metric | FY2024 | FY2025 | Read-through |
|---|---|---|---|
| Revenue | RM56.7bn | **RM67.7bn** | Sales-volume growth + RP4 cost-reflective tariff [15] |
| EBITDA | RM19.95bn | **RM20.52bn** | Margin 30.3% → 31.6% |
| Core PAT | RM4.16bn | **RM4.77bn** | +14.7% YoY [15] |
| DPS | — | **53 sen (65.6% payout)** | High-end of policy [14] |
| Regulated CapEx | — | **~RM12bn** (RM10.3bn base + RM1.7bn contingent) | Genco core PAT MYR 315m on EAF 87.8% [14] |
| Total Group CapEx FY2026 plan | — | ~RM18bn (RM13bn regulated + RM5bn non-regulated) | Continued ramp confirmed |

The numbers ratify the CLSA bull thesis: regulated business is delivering, contingent capex is already being triggered, and dividend capacity is intact.

---

## 3. Valuation Anchor

CLSA's RM17.60 TP is a **DCF (terminal year 2035)** with the following inputs: **WACC 7.2%** (60% equity), MRP 6.7%, Rf 4.2%, beta 0.8, cost of debt 3%, **terminal growth 3%** explicitly justified by data-centre-driven electricity demand [5]. Forecasts embed 4.5% YoY electricity-volume growth 2025-27 and **do NOT incorporate the RM16.3bn contingent capex upside** [2] — i.e., there is structural conservatism in the TP.

**Peer context (CLSA peer/customer matrix):** Tenaga at 15.3x FY1 PE sits at peer-median (peer median 13.4x), but with materially better growth (EPS +10.6% YoY) than US/Japan regulated utilities (Duke 18.5x / +6.9%, Xcel 18.3x / +9.3%, Tokyo Gas 12.4x / +97.1%) and lower net-debt/equity (59%) than DM peers (Duke 162%, Xcel 156%) [10].

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## 4. Catalysts (Next 6-18 Months)

1. **Contingent-capex triggers** — RM16.3bn pool, recognition is now same-year under the upgraded RBR framework [2][11].
2. **Singapore / cross-border interconnection news flow** — 2GW Malaysia-Singapore interconnector, 1GW Thailand-Malaysia upgrade, and Vietnam-Malaysia-Singapore APG corridors are flagged in TNB's own IAR2025 [13].
3. **Further data-centre ESA signings** — 7 ESAs (1.2GW) were already in the signed pipeline at end-2025, with 1.7GW signed YTD on the GET Green Path window [13].
4. **Tariff/AFA refinements** — the new July 2025 tariff schedule and shortened AFA recovery cycle are still bedding in; full-year impact in 2026 [11].

---

## 5. Risks / What Breaks the Thesis

CLSA flags four explicit risks [6]:
1. **Delays in ICPT compensation** from the government.
2. **MYR depreciation** — 14% of borrowings is USD-denominated, plus JPY 3%, GBP 6%, EUR 2%, AUD 2%; FX-translation hit on both interest and offshore investments.
3. **Questionable acquisitions** — execution discipline on capital allocation.
4. **Renewable-energy execution risk**, particularly overseas (Vantage RE platform, UK assets).

To these, add the implicit ones: (a) electricity-demand surprise to the downside if DC capex slows; (b) a less-favourable RP5 framework in 2028 (still 2-3 years away); (c) coal/gas fuel-cost shocks that exceed the AFA's pass-through speed.

---

## 6. House-View Summary — How to Position

Tenaga in the current market environment offers an **uncommon combination**: a regulated-return floor (7.3% on RAB) + structural volume tailwind (data-centre commercial sales) + a fully-funded RM26.6bn base + RM16.3bn contingent capex pipeline + a 3-4% dividend yield. The Malaysian benchmark backdrop is mixed (consensus FBMKLCI 2025 EPS growth cut from 9.0% start-year to 5.1% by end-May), and within that, **CIMB, MISC and Tenaga are flagged as CLSA's compelling top picks**, with the read-through being that defensive regulated growth wins when broader earnings momentum disappoints. The cleanest expression for an institutional investor with a 12-month horizon is a **long position vs. an underweight in fuel-cost-exposed Malaysian peers**, sized to reflect the FX/ICPT-delay tail risks above.

---

**Sources**

[1] CLSA, "Tenaga – O-PF (Fresh start)", 27-May-2025 (607960696LinqAlpha.PDF) — Commendable growth from commercial segment; 7.3% guaranteed regulatory return on RAB.
[2] CLSA, "Tenaga – O-PF (Fresh start)", 27-May-2025 — RM2.79bn 1Q25 regulated capex; RM16.3bn contingent capex pool; 4.5% volume growth assumption.
[3] CLSA, "Tenaga – O-PF (Fresh start)", 27-May-2025 — Investment thesis: RP4 differentiated WACC and energy exports.
[4] CLSA, "Tenaga – O-PF (Fresh start)", 27-May-2025 — Catalysts: Singapore exports + infrastructure upgrades.
[5] CLSA, "Tenaga – O-PF (Fresh start)", 27-May-2025 — DCF valuation: 7.2% WACC, 3% terminal growth.
[6] CLSA, "Tenaga – O-PF (Fresh start)", 27-May-2025 — Risk list (ICPT delays, FX, M&A, RE execution).
[7] CLSA, "Tenaga – O-PF (Fresh start)", 27-May-2025 — Financial-summary table (2023-27CL).
[8] CLSA, "Malaysia Strategy (Data centre channel check)", 6-Jun-2025 (607961433LinqAlpha.PDF) — Tenaga 15.3x/15.0x PE flagged as inexpensive.
[9] CLSA, "Malaysia Strategy (Data centre channel check)", 6-Jun-2025 — 800MW capacity by 2028 channel check.
[10] CLSA, "Tenaga – O-PF (Fresh start)", 27-May-2025 — Peer/customer matrix.
[11] Tenaga Nasional Berhad, Q4 2025 earnings call transcript — RBR contingent-capex revenue recognition + AFA mechanism.
[12] Tenaga Nasional Berhad, Q4 2025 earnings call transcript — FY2025 dividend (65.6% payout / 53 sen) + RM12bn regulated capex deployment.
[13] Tenaga Nasional Berhad, Q4 2025 results slides — Data centre 56 projects / 7.5GW; ByteDance GET; APG interconnection.
[14] Tenaga Nasional Berhad, Q4 2025 earnings call — FY2025 strategy across four business pillars (Genco PAT MYR 315m, EAF 87.8%).
[15] Tenaga Nasional Berhad, Q4 2025 results slides — FY2025 financial summary (Revenue RM67,723.1m, EBITDA RM20,517.7m, Core PAT RM4,769m).

## Citations

- [1] **607960696LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960696LinqAlpha.PDF>
- [2] **607960696LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960696LinqAlpha.PDF>
- [3] **607960696LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960696LinqAlpha.PDF>
- [4] **607960696LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960696LinqAlpha.PDF>
- [5] **607960696LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960696LinqAlpha.PDF>
- [6] **607960696LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960696LinqAlpha.PDF>
- [7] **607960696LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960696LinqAlpha.PDF>
- [8] **607961433LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607961433LinqAlpha.PDF>
- [9] **607961433LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607961433LinqAlpha.PDF>
- [10] **607960696LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960696LinqAlpha.PDF>
- [11] **Tenaga Nasional Berhad, Q4 2025** · external
- [12] **Tenaga Nasional Berhad, Q4 2025** · external
- [13] **Tenaga Nasional Berhad, Q4 2025** · external
- [14] **Tenaga Nasional Berhad, Q4 2025** · external

