In a note, the research house said TNB completed two data centre projects with a total energy demand of 535MW in the first quarter of the year.
A total of nine data centre projects are expected to be completed in 2024, amounting to 700MW of energy demand, it added.
“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.
“This is evident in the Q1 FY2024 results, where the commercial segment registered an 11.2% year-on-year (y-o-y) growth in electricity demand,” said TA.
TNB expects to sign an electricity supply agreement for another 10 projects in 2024, with an estimated 2,000MW total energy demand, it said.
TA reiterated its “buy” call with an unchanged target price (TP) of RM14.50 per share.
On the liberalisation of the power generation segment, TA said the management believes that allowing third-party access (TPA) where independent power producers (IPP) can sell directly to customers is “a boon to the industry”.
“TNB expects TPA to encourage more renewable energy (RE) generation, particularly solar energy. In our opinion, the tariff negotiated with customers will likely be more favourable for asset owners compared with those of large scale solar (LSS) projects, which is done via competitive bidding.”
Regardless of the TPA framework, TA said the 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 a better regulated return for TNB,” it added.
NETR projects a rerating catalyst
In a recent report, CIMB Securities said the timely implementation of the National Energy Transition Roadmap (NETR) initiatives should make TNB’s earnings prospect attractive.
This will act as a strong rerating catalyst for TNB, said CIMB Securities, which upgraded the stock to a “buy” call with a higher TP of RM15.27.
The research house said the group’s earnings prospect will be driven by higher regulated capital expenditure associated with the NETR.
“We favour TNB as it is the primary beneficiary of Malaysia’s decarbonisation agenda,” CIMB said.
It also noted that in 2023, Peninsular Malaysia’s electricity demand grew 3.6%, largely driven by higher demand from data centres.
It expects the strong pipeline of data centre projects to drive domestic demand growth, estimated at 2%-2.5% for FY2024-FY2026. TNB projects that the maximum potential demand for electricity from data centres could exceed 5GW by 2035.
Strong DC electricity demand growth not only allows for more efficient utilisation of TNB’s infrastructure assets, it also boosts demand for green energy in the country, CIMB added.
The utilities giant’s net profit fell 28.6% to RM715.7 million in the first quarter ended March 31 (Q1 FY2024) from RM1 billion a year ago on foreign exchange translation losses and higher tax expenses.
However, revenue rose 8% to RM13.64 billion from RM12.63 billion a year ago. The group said the higher revenue was driven by electricity demand growth of 9.9% y-o-y, consistent with the country’s gross domestic product expansion of 4.2%.
TNB’s shares closed 44 sen or 3.32% higher at RM13.70, valuing the group at RM79.3 billion.