PETALING JAYA: The burgeoning data center industry in Malaysia is set to significantly drive electricity demand, benefiting Tenaga Nasional Bhd (TNB), the country’s sole electricity provider.
TNB’s electricity sales hit a record 31,899 gigawatt hours in the first quarter of 2024, driven by two new data centers with a combined capacity of about 600 megawatts (MW), despite this quarter typically being the weakest.
Kenanga Research upgraded its recommendation for TNB to “outperform” and increased the target price by 16%, noting TNB’s forecasted electricity demand growth of 2.5% to 3% in 2024. The research firm expects this growth rate to continue into Regulatory Period 4 (RP4), up from 1.8% during RP3, thanks to a robust pipeline of data center projects.
TNB anticipates completing nine data center projects with a total energy demand of 700MW in 2024. By March 2024, two projects with a combined demand of 535MW were already operational: the Yondr Data Centre and Princeton Digital Group Data Centre in Sedenak Tech Park, Johor. Additionally, TNB signed Electricity Supply Agreements (ESAs) in January 2024 with Microsoft and Vantage Data Centres for facilities in Cyberjaya, scheduled for commissioning by June and December 2025, respectively, with a combined demand of 484MW.
Given the positive outlook, Kenanga Research has raised its earnings forecasts for TNB by 3% for FY24 and 4% for FY25, setting a target price of RM14.50 per share.
In a separate note, TA Research highlighted that TNB plans to sign ESAs for another 10 projects in 2024, totaling over 2,000MW in energy demand. These data centers are gradually increasing their energy consumption, thereby progressively boosting electricity demand.
TA Research also noted the positive impact of liberalizing the power generation sector through third-party access (TPA), allowing independent power producers (IPPs), including solar power producers, to sell directly to customers. This would improve grid utilization and necessitate further investment in the infrastructure, likely leading to a higher regulated asset base and better returns for TNB.
Furthermore, TNB aims to bring the Manjung 4 Power Plant back online by the end of 2024, following an unscheduled outage since December 2023. The estimated capacity payment loss remains around RM400 million, and TNB is working with insurers on claims.
TA Research reaffirmed its “buy” call on TNB with a target price of RM14.50 per share.
In contrast, Hong Leong Investment Bank (HLIB) Research remains neutral on TNB’s earnings outlook. HLIB acknowledged the sustainability of TNB’s regulated earnings and cash flow under the regulated asset base (RAB) for FY24, given stable fuel prices. They expect further improvements in the regulated transmission and distribution segment from 2025 onwards, under RP4, due to an expanded RAB asset base. However, HLIB predicts the power generation segment will remain unprofitable in the near term, affected by the unscheduled downtime of Manjung 4 and expiring power purchase agreements.
HLIB Research maintained its “hold” call on TNB with a target price of RM13.30.
