KUALA LUMPUR: Tenaga Nasional Bhd’s (TNB) earnings growth over the immediate term looks promising, driven by the establishment of new electricity-intensive data centres in Malaysia.

In addition, the national utility expects the negative fuel margins that impacted its performance in 2023 to completely ease as it enters 2024.

Citing TNB’s management comments from a recent briefing, Kenanga Research said TNB has projected total potential demand of 7,000 megawatt (MW) of electricity from data centres by 2035.

The research house noted that TNB had already signed electricity supply agreements (ESAs) with eight data centres to date for 2,000MW of electricity.

“So far, six new data centres have been completed, which will consume about 292MW of electricity,” Kenanga Research said.

“Over the immediate term, the demand for electricity will be driven by new data centres.”

Kenanga Research maintained its “outperform” rating on TNB, with an unchanged target price of RM11.45.

It said negative fuel margins, which totalled RM767.9mil in the first nine months of 2023, would be unlikely to recur in 2024, given stabilising coal prices.

It noted that coal prices had moderated from US$377.59 per tonne in September 2022 to US$138.62 per tonne in September 2023.

“Easing coal prices will bring down the imbalance-cost-pass-through (ICPT) receivables, resulting in lower working capital requirements and hence interest expenses and better earnings,” it added.

Hong Leong Investment Bank (HLIB) Research said while negative fuel margins continue impact TNB’s fourth quarter ending Dec 31, 2023, the utility had been reporting improving cashflow due to ongoing ICPT and drop in fuel prices.

The brokerage said it viewed positively TNB’s position as Malaysia’s largest utilities group and its capability to leverage the National Energy Transition Roadmap (NETR) to improve the group’s environmental, social and governance (ESG) profile.

“Under the NETR, we expect TNB to accelerate its energy transitioning plan and further diversify its earnings base,” HLIB Research said.

It noted that TNB planned to invest RM90bil in transmission and grid infrastructure for 2025-2030, of which RM35bil had been slated for energy transition.

“It was indicated that the government is studying new tariff structures (including higher rates for renewable energy and exports) and accelerating data centre development in order to cover TNB’s intensive capital expenditure,” it said in a report following a recent briefing by TNB.

HLIB Research maintained its “buy” call on TNB, with an unchanged target price of RM11.

Similarly, TA Research reiterated its “buy” call on TNB, with target price of RM11.

The brokerage revealed that its key takeaways from TNB’s recent briefing included expectations that negative fuel margins would completely ease in 2024.

It added that TNB recently submitted proposals to be effective from Jan 1, 2025 to Dec 31, 2027 to the government. It noted that TNB expected a new energy exchange hub to be operational during the period.

“The exchange hub’s main role would be to encourage trading of energy and will be as transparent as possible to encourage an open electricity market in Malaysia,” TA Research said.

“The exchange hub is expected to start with the opening of an export market, likely in 2024, while the opening of the domestic market may take longer due to difficulty in removing the subsidies involved,” it added.