KUALA LUMPUR: For a utility company such as Tenaga Nasional Bhd (TNB), a solid financial position – underpinned by a healthy balance sheet, low debt and strong cash flow – enables it to allocate capital towards infrastructure upgrades, research and development, and operational improvements that benefit consumers.
This, in effect, ensures dependable and efficient power supply for residential, commercial and industrial consumers, said UOB Kay Hian Wealth Advisors head of investment research, Mohd Sedek Jantan.
Mohd Sedek stressed that financial stability allows TNB to invest in modernising its power grid, improving system efficiency, and reducing outages, thereby enhancing service reliability and contributing to a more sustainable energy ecosystem.
With financial strength, TNB is able to conduct research and development to explore innovative technologies that further boost operational efficiency.
“Beyond its business-as-usual focus, TNB is actively diversifying into new sectors, such as renewable energy and EV charging. This strategic shift not only strengthens its financial resilience by creating additional revenue streams but also positions the company for sustained long-term growth,” he said.
It is to be noted that TNB shared that it anticipates strong electricity demand growth in the first half of the year will be sustained over the second half of the 2024 financial year, as well as into 2025 and 2026, partly driven by rising energy demand from data centres over the next few years.
So far, TNB, through its investments, has completed the connection of seven data centre projects to the grid in the first half of 2024, totalling about 1,070 megawatts, with an additional 3.2 gigawatts for 21 data centre projects in the supply application stage, said CIMB Securities.
The strong demand for data centres has led TNB to estimate a higher 3-4% demand growth for the 2024 financial year, compared to its previous estimate of 2.5-3%.
While higher electricity demand is projected for Regulatory Period 4 (RP4 or 2025-2027) compared to the 1.7% growth seen in RP3 (2022-2024), TNB is expected to increase its capital expenditure on regulated assets during RP4 to RP5 (RP2027-2029), in line with the National Energy Transition Plan (NETR), said the research note.
On TNB’s foray into data centres and renewable energy, Mohd Sedek said, “It is aligned with the increasing demand for sustainable and reliable energy solutions.”
He said these initiatives not only drive revenue growth but also reinforce TNB's leadership in the energy transition, demonstrating its commitment to innovation and sustainability—both of which are instrumental in enhancing its brand reputation and attracting new customers.
He also said that a strong financial position is fundamental to TNB’s capacity to undertake capital-intensive infrastructure upgrades essential for maintaining operational efficiency and securing long-term competitiveness.
“Infrastructure projects, whether in physical assets, advanced technology systems, or network modernisation, demand significant upfront capital and sustained financial commitment.”
The scale and complexity of these investments require not only immediate liquidity but also access to flexible financing options, both of which are underpinned by a solid financial foundation.
“A robust balance sheet enhances TNB’s ability to raise capital on favourable terms, leveraging its creditworthiness to access competitive financing in capital markets.”
The company’s current credit rating of A- from S&P Global should be maintained. The rating, an improvement from BBB+, reflects its strengthened financial stability, reducing the cost of borrowing and increasing investor confidence in its debt offerings.
Mohd Sedek said access to lower-cost capital is crucial for large-scale infrastructure investments, enabling TNB to spread financial risks over time without placing undue pressure on its operational cash flow or liquidity reserves.
“Furthermore, sound financial health allows TNB to adopt a more disciplined approach to capital allocation, ensuring that it prioritises projects offering the highest long-term returns.”
He explained that balancing between immediate operational demands and strategic objectives enables the company to channel resources into upgrading grid infrastructure, integrating smart technologies, and enhancing system resilience, all while preserving financial flexibility.
“Risk management is another critical advantage afforded by a strong financial position. Infrastructure upgrades, often spanning several years, are susceptible to regulatory changes, material cost fluctuations, and macroeconomic volatility,” he said.
Financial strength acts as a buffer against these uncertainties, ensuring that ongoing projects remain unaffected by external pressures.
In essence, financial robustness not only facilitates TNB’s ability to pursue vital infrastructure projects but also strengthens its capacity to manage the inherent risks associated with such investments.
“By maintaining a sound financial footing, a company is able to execute its long-term infrastructure strategy without compromising liquidity, profitability, or overall financial stability.”
This also leads to the need for the government to provide a fair return during Regulatory Period 4 (RP4), which is currently under review.
A balanced return on investment will enable the utility company to maintain and upgrade its infrastructure, invest in renewable energy initiatives, and enhance overall service reliability.
By fostering a stable financial environment, the government will empower TNB to deliver on its commitments, ensuring a sustainable energy future for all Malaysians. – Bernama
