KUALA LUMPUR (Dec 6): The recent pullback at Tenaga Nasional Bhd or TNB (KL:TENAGA) represents a buying opportunity, said CGS International, which expects above-average demand growth to translate into higher regulated capital expenditure (capex) requirements for the utility player in the next three years.

TNB's capex allowance for transmission and distribution (T&D) assets, which is reviewed under a three-year regulatory period (RP), is scheduled to be made known under the RP4 (2025-2027) by the end of this month.

Shares of TNB have retreated by 9% from their September peak, which CGS said "implies low expectations for the RP4", while the research house sees significantly higher T&D capex ahead.

"Under the RP3 (2022-2024), the annual budgeted T&D capex of RM7.5 billion was to meet demand growth of just 1.8% (the 2017-2023 compound annual growth rate was 1.6%).

"This compares to the 9M2024 growth of 7.3%, driven by robust incremental power demand from the commercial and residential sectors.

"We expect this above-average growth to persist as the 4.7 gigawatt worth of electricity supply agreements signed with data centres alone imply annual growth rates of 3.5%-5% over the next five to seven years," it said.

The research house maintained its 'buy' call on the stock at RM19.10 per share.

Similarly, BIMB Securities has a TP of RM17.84 for the stock, citing stable fossil fuel prices, as well as data centre electricity demand and opportunities from grid third-party access, which are positive for the utilities sector on a whole.

However, BIMB sees a weaker fourth quarter for TNB on lower foreign exchange gains expected.  

On the wider utilities sector, BIMB maintained its 'overweight' call, citing bright prospects for solar farm players, amid the Large-Scale Solar 5 (LSS5) bids to be announced by January, sustained interest in rooftop solar under the Net Energy Metering 3.0 scheme, and the ongoing large-scale solar rollout under the Corporate Green Power Programme (CGPP).

For gas players, BIMB expects a “positive spillover impact”, while noting its role as a dominant fuel source in the energy transition, as seen in the gradual uptick in despatch rates from the Segari Combined Cycle Gas Turbine Plant (SCCGT).

Malaysia's National Gas Roadmap, which has been talked about over the last few years, has yet to be published. The road map, which will touch on market liberalisation and new investments in the sector, could be out in the second quarter of 2025, channel checks showed.