PETALING JAYA: The mushrooming data centres in Malaysia will be the main driver for electricity demand growth, benefiting the country’s sole electricity provider, Tenaga Nasional Bhd (TNB).
In fact, TNB’s electricity sales already hit a record in the first quarter of 2024 at 31,899 gigawatt hours, driven by two new data centres that have a combined installed capacity of about 600 megawatts (MW).
The strong sales was achieved despite the first quarter being seasonally the weakest quarter in the year.
Kenanga Research, which upgraded its call on TNB to “outperform” and raised the target price by 16%, said TNB guided for electricity demand growth of 2.5% to 3% in 2024.
“We expect the same growth rate over Regulatory Period 4 (RP4), versus 1.8% during RP3, backed by a strong pipeline of data centre projects.
“TNB guided for nine data centre projects with a total energy demand of 700MW to be completed in 2024.
“So far, two with 535MW energy demand were already commissioned in March 2024, namely Yondr Data Centre and Princeton Digital Group Data Centre, both in Sedenak Tech Park, Johor.
“Also, in January 2024, TNB signed an Electricity Supply Agreement (ESA) each with Microsoft for its data centre scheduled for commissioning by June 2025, and Vantage Data Centres for its data centre scheduled for commissioning by December 2025.
“The two data centres with a combined energy demand of 484MW are located in Cyberjaya.”
Given the positive outlook ahead, Kenanga Research has raised the earnings forecasts for the financial year 2024 (FY24) and FY25 by 3% and 4%, respectively.
It has set a target price of RM14.50 per share for TNB.
In a separate note, TA Research said TNB expects to sign ESAs for another 10 projects in 2024, with above 2,000MW of total energy demand.
These data centres are gradually increasing their energy consumption in a stepped ladder fashion after being connected to the grid, hence progressively driving the electricity demand.
On the liberalisation of the power generation segment via third-party access (TPA), TA Research said it is a boon to the industry. With TPA, independent power producers (IPPs) like solar power producers can sell directly to customers.
“In our opinion, the tariff negotiated with customers will likely be more favourable for asset owners compared with those of large-scale solar projects, which is done via competitive bidding.
“Regardless of the TPA framework and whether non-renewable energy is involved in the TPA, IPPs will have to utilise TNB’s transmission and distribution lines, improving the utilisation of the grid and necessitating more investment into the grids.
“This points towards a higher regulated asset base and likely better regulated return for TNB,” TA Research stated.
The research house also noted that TNB is working to bring Manjung 4 Power Plant back online by end-2024.
Recap that Manjung 4 Power Plant experienced an unscheduled outage since December 2023.
“The estimated capacity payment loss is still about RM400mil as previously guided, and the group is working closely with the insurer on the insurance claims,” it added.
TA Research has reiterated its “buy” call on TNB with an unchanged target price of RM14.50 per share.
In contrast to Kenanga Research and TA Research, Hong Leong Investment Bank (HLIB) Research stayed neutral on TNB’s earnings outlook.
It said TNB’s regulated earnings and cash flow under the regulated asset base (RAB) remain sustainable in FY24, given the stable fuel prices.
“We expect contributions from the regulated transmission and distribution segment to improve further from 2025 onwards, under the new RP4, driven by the higher RAB asset base.
“However, the power generation segment will likely stay in the red in the near term, affected by the unscheduled downtime (currently only Manjung 4) and step down in capacity rate financial, as well as power purchase agreements expiring.”
HLIB Research maintained its “hold” call on TNB with a target price of RM13.30.