---
endpoint: analytics
pattern: Power
status: done
latency_ms: 256980
conversation_id: 81903662-e89b-4ec2-be04-686e88ce4bb8
citations: 10
created: 2026-05-31 22:25:07Z
---

# What are the key risks to Tenaga’s growth trajectory?

# Key Risks to Tenaga's (TNB MK) Growth Trajectory

Based on CLSA's internal research archive — primarily the 27 May 2025 dedicated TNB note (*Tenaga – O-PF, "Fresh start"*) and supporting Malaysia strategy / data centre channel checks dated through end-June 2025. CLSA carries TNB at **Outperform with a DCF-derived TP of RM17.60** [3], and the bull case is anchored on power-sector reform, a 7.3% guaranteed regulated return, and rising data-centre electricity demand driving regulated capex from a RM26.6bn base plus RM16.3bn contingent capex envelope under Regulatory Period 4 (2025-27) [2][3]. The risks below are what could derail that thesis.

## 1. Company-specific risks (per CLSA's formal "Investment risks" section)

CLSA flags four explicit risks in the TNB note [1]:

| # | Risk | Detail |
|---|------|--------|
| 1 | **ICPT compensation delays** | Tenaga acts as a pass-through for fuel-cost surcharges via the Imbalance Cost Pass-Through (ICPT) mechanism. If the government delays reimbursement, working capital and receivables balloon (debtor days hit 119.7 in 2022 and 114.3 in 2023 during a similar squeeze). The 1H25 ICPT surcharge is **18 sen/kWh** — roughly 44% of the 41 sen/kWh base tariff — so the cash-flow drag if reimbursement slips is non-trivial [1] |
| 2 | **Ringgit depreciation on FX-denominated debt** | A material slice of borrowings is foreign-currency: **14% USD, 6% GBP, 3% JPY, 2% EUR, 2% AUD** (~27% in total). A weaker MYR inflates the ringgit-translated debt stock and interest expense, and also hurts the value of international investments [1] |
| 3 | **Questionable acquisitions** | M&A execution risk — capital allocation outside the core regulated asset base would dilute the high-quality regulated-return story [1] |
| 4 | **Renewable-energy execution risk** | Tenaga's RE journey, particularly in overseas markets, is a known execution wildcard [1] |

## 2. Demand-side risks — data centre take-up is the growth engine and is fragile

CLSA's earnings model assumes **4.5% YoY electricity demand growth in 2025-27**, and the unlocking of the RM16.3bn contingent capex bucket (the main upside above the base case) is conditional on demand "growing at a much faster pace" [2]. Several factors put that assumption at risk:

- **Industrial demand is already contracting.** In 1Q25, electricity demand from the **industrial segment fell 5.5% YoY** while commercial (which contains data centres) grew 5.1% YoY [2]. The headline number was flat; if the industrial recovery doesn't come and data-centre commissioning slips, the 4.5% trajectory is hard to hit.
- **Data-centre growth is already slowing.** CLSA notes that "electricity demand from data centres is still showing positive growth in 1Q25, albeit at slower pace" [2] — so the very catalyst underpinning the bull case is decelerating.
- **Water supply is the binding constraint on data centres.** CLSA's June 2025 channel check with the largest live DC operator in Johor/Malaysia explicitly identifies that "the **stumbling block to growth is water supply**. One DC company has resorted to waste water treatment to convert water for cooling" [5]. If water rationing limits DC roll-out, TNB's load-growth story is capped regardless of how much grid capex it deploys.
- **Risk of DC oversupply / price competition.** CLSA's analogous risk write-up for YTL Power (Malaysian power peer, same end-market) warns of "a risk of a slow take-up rate given mushrooming datacentres coming up at almost the same time in Malaysia. This could trigger price competition among the datacentre providers, which essentially could lead to lower profitability margin" [6]. While TNB itself isn't a DC operator, weaker DC unit economics would slow new build approvals and thus slow TNB's MW-connection pipeline.
- **Regional power-export thesis requires legislation.** Energy exports — part of CLSA's investment thesis [3] — "would require changes in the Malaysia Electricity Supply Act 1990 which would have to pass through the Malaysian cabinet and Parliament. This would take some time and most importantly would demand strong political action among heads of Asean governments to execute seamless regional power interconnection" [6].

## 3. Fuel-cost & margin risks

While the ICPT mechanism is designed to insulate Tenaga from fuel-cost volatility, the gap between cost-shock and reimbursement creates real margin pressure:

- **Gas costs spiked sharply in 1Q25.** Gas reference price rose to **RM44.0/mmBtu in 1Q25, up 17.7% YoY** from RM37.4. Coal averaged US$104.7/tonne (down 8.6% YoY) but daily gas allocation fell 17.8% YoY to 836 mmscfd vs 1,017 — a less favourable fuel mix [8].
- **Implied tariff is slipping.** Average implied tariff fell to **39.7 sen/kWh in 1Q25, –1.4% YoY** and –1.1% QoQ — the first 1Q decline in the displayed history (1Q18–1Q25 range was previously 39.7–40.6) [9]. A persistent tariff drift lower means the regulated-return uplift has to do more of the heavy lifting.
- **Margin compression already visible.** Normalised EBITDA margin was **26.4% in 1Q25 vs 27.6% in 1Q24 (–1.2pp) and 32.2% in 4Q24 (–5.8pp)**; core PAT margin 7.4% vs 7.9% YoY [8]. Headline PATAMI growth (+47.8% YoY) was flattered by base effects — core PATAMI grew only 10.5% YoY [7].

## 4. Balance-sheet and capex-execution risk

The RP4 capex programme is the largest in TNB's history and the binary driver of regulated-asset-base growth:

- **Leverage remains elevated.** Net debt/equity **60.4% in 2024, modelled at 59.0% (2025), 56.2% (2026), 51.0% (2027)**; gross debt/equity **91.7%** in 2024; net debt/EBITDA **1.8x → 2.1x in 2025**; interest cover only **2.3x** [estimated to stay at 2.2–2.3x through 2027] [Financials at a glance, doc 607960696].
- **Capex is heavy and front-loaded.** Tenaga deployed **RM2.79bn in regulated capex in 1Q25 (10.5% of the RM26.6bn approved base capex** for RP4) and must ramp materially in the coming quarters [2]. The 2025-27 model assumes RM10bn / RM10bn / RM9bn capex per year [Financials at a glance], and capex/sales stays at 13–16%. If contingent capex of RM16.3bn is unlocked, financing the additional pipeline at current leverage is a real question.
- **Effective tax rate volatility.** 1Q25 ETR was **33% vs 21% in 4Q24** owing to timing on investment tax allowance claims [7] — earnings phasing is lumpy and creates quarterly disappointment risk.

## 5. Macro / market-level risks

- **Consensus EPS for TNB is barely moving.** Per CLSA's 9-June Malaysia strategy update, consensus 2025 EPS for TNB has nudged just **+0.6%** YTD (from 0.81 to 0.82) — vs the FBMKLCI weighted average of –1.7% [Malaysia Strategy 1Q25 results table]. The market is already pricing in the data-centre tailwind, leaving little cushion if it disappoints.
- **Top-pick fragility.** CLSA labels TNB one of Malaysia's "most compelling" top picks alongside MISC and CIMB [10] — but the call hinges on continued DC build-out. A sector-wide DC pause would compress both earnings and the valuation re-rating.

## Summary Risk Map

| Risk Bucket | Specific Risk | Probability (CLSA framing) |
|-------------|---------------|---------------------------|
| Regulatory / cash | ICPT compensation delays | Recurring, structural [1] |
| FX | MYR weakness on USD/GBP/JPY/EUR/AUD debt (~27% of borrowings) | Macro-driven [1] |
| Capital allocation | Questionable M&A | Idiosyncratic [1] |
| Strategic execution | RE pipeline execution, especially overseas | Medium [1] |
| Demand | Industrial demand contraction (1Q25 –5.5% YoY) offsetting commercial growth | Already crystallising [2] |
| Demand | Data-centre growth slowing in 1Q25 even as it remains positive | Crystallising [2] |
| Infrastructure | Water supply as binding constraint on DC build-out | High-conviction channel check [5] |
| Demand quality | Mushrooming DC capacity → take-up risk and pricing pressure | Sector risk [6] |
| Regulatory | Malaysian Electricity Supply Act 1990 change required for RE export thesis | Slow-moving political risk [6] |
| Cost | 17.7% YoY gas reference price increase in 1Q25 | Crystallising [8] |
| Margin | Implied tariff –1.4% YoY in 1Q25; EBITDA margin –1.2pp YoY | Crystallising [8] |
| Balance sheet | High gearing (net debt/equity 60%, net debt/EBITDA 1.8–2.1x) with RM26.6bn base + RM16.3bn contingent capex | Structural [Financials] |

**Bottom line:** CLSA's bull case hangs on the regulated 7.3% return × an expanding RAB driven by data-centre power demand. The biggest single point of failure is **demand**: industrial weakness, DC water constraints, and signs of DC growth slowing in 1Q25 all threaten to keep electricity-volume growth below the 4.5% assumed in the model and prevent the RM16.3bn contingent capex bucket from being triggered. Layered on top are the formal four "Investment risks" CLSA flags — ICPT delays, MYR FX, M&A, and overseas RE execution.

---
**Sources**
[1] *Tenaga – O-PF (Fresh start)* — CLSA, 27 May 2025 — 607960696LinqAlpha.PDF (Investment risks section)
[2] *Tenaga – O-PF (Fresh start)* — CLSA, 27 May 2025 — 607960696LinqAlpha.PDF (1Q25 demand and capex commentary)
[3] *Tenaga – O-PF (Fresh start)* — CLSA, 27 May 2025 — 607960696LinqAlpha.PDF (Investment thesis & TP)
[4] *Tenaga – O-PF (Fresh start)* — CLSA, 27 May 2025 — 607960696LinqAlpha.PDF (Valuation methodology)
[5] *Malaysia Strategy (Data centre channel check)* — CLSA, 6 June 2025 — 607961433LinqAlpha.PDF (Water supply as DC growth stumbling block)
[6] *YTL Power – O-PF (Charging on)* — CLSA, 13 June 2025 — 607961948LinqAlpha.PDF (Sector-wide investment risks: tariff, DC take-up, RE-export legislation)
[7] *Tenaga – O-PF (Fresh start)* — CLSA, 27 May 2025 — 607960696LinqAlpha.PDF (1Q25 earnings & tax rate)
[8] *Tenaga – O-PF (Fresh start)* — CLSA, 27 May 2025 — 607960696LinqAlpha.PDF (1Q25 operating matrix table)
[9] *Tenaga – O-PF (Fresh start)* — CLSA, 27 May 2025 — 607960696LinqAlpha.PDF (Quarterly implied tariff table)
[10] *Malaysia Strategy (1Q25 results: outlook not as dire)* — CLSA, 9 June 2025 — 607961581LinqAlpha.PDF (Top-pick commentary)

## 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] **607961433LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607961433LinqAlpha.PDF>
- [6] **607961948LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607961948LinqAlpha.PDF>
- [7] **607960696LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960696LinqAlpha.PDF>
- [8] **607960696LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960696LinqAlpha.PDF>
- [9] **607960696LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960696LinqAlpha.PDF>
- [10] **607961581LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607961581LinqAlpha.PDF>

