Tenaga Nasional Bhd Signals Strong Growth in FY2025

Tenaga Nasional Bhd ((TNABF)) has held its Q4 earnings call. Read on for the main highlights of the call.

Tenaga Nasional Bhd’s latest earnings call struck an upbeat tone as management highlighted double-digit revenue and core profit growth, stronger margins and faster capital spending on its regulated grid. While they acknowledged execution and policy risks around data centres, IT costs and overseas projects, the narrative framed these as timing issues rather than structural threats to earnings.

Strong Top‑line and Profit Growth

Tenaga reported around 19.4% year‑on‑year revenue growth for FY2025, mainly from higher electricity sales. EBITDA rose about 2.8% to MYR 20.5 billion, lifting the EBITDA margin to 31.6%, while core profit climbed roughly 14.7% to nearly MYR 4.8 billion after adjusting for forex and accounting effects.

Shareholder Returns Elevated

The board declared a total dividend of MYR 0.53 per share, translating into a MYR 3.1 billion payout and a 65.6% payout ratio. This continues an upward trend from MYR 0.40 in 2021 to MYR 0.53 in 2025, signalling confidence in cash generation and a commitment to reward shareholders.

Regulated CapEx Execution and Ramp‑up

Regulated CapEx utilisation in FY2025 surged to MYR 12.0 billion, far above the original annual budget of MYR 7.8 billion, split between MYR 10.3 billion base and MYR 1.7 billion contingent spending. Under the RP4 cycle with a MYR 42.82 billion allowance, management guided to about MYR 13 billion regulated CapEx in 2026 and MYR 15 billion in 2027, with group CapEx of MYR 18 billion next year.

Operational Performance in Generation and Networks

Generation performance improved, with the equivalent availability factor rising to 87.8% from 83%, underpinning reliable supply. On the grid, transmission system minutes were held at 0.15 minutes and SAIDI improved to 46.93 minutes, supported by completion of major lines like the 500kV Ayer Tawar–Bentong South–Lenggeng corridor.

Smart Meter and Grid Digitalization Push

Tenaga’s digitalisation drive gathered pace with more than 1 million smart meters installed in 2025, bringing the total to around 5.6 million and covering over half its customers. Distribution automation expanded by over 5,100 substations to more than 38,000, with 2026 plans for another 1 million smart meters and more than 2,000 upgraded substations.

Demand Momentum and Data Centre Pipeline

Electricity sales reached 133,895 GWh in FY2025, with commercial demand up about 10% year‑on‑year, largely from data centre customers. The company now counts 35 data centre projects with agreed supply of about 4.5 GW and a total pipeline near 7.5 GW, with load utilisation already around 850 MW by December 2025.

EV and New Revenue Streams Scaling Up

Revenue from the EV charging ecosystem rose roughly 88% year‑on‑year to about MYR 7.1 million, with MYR 2.7 million coming from Tenaga‑owned charge points. Its TNB Electron network grew to 256 charge points, adding 190 in 2025, while a wider ecosystem of more than 5,700 points suggests significant room for future growth.

ESG, Brand and Reputation Strengthening

Tenaga reported a string of ESG and brand milestones, including national awards for corporate governance and sustainability. It is now rated the second strongest utility brand globally by Brand Finance, has moved to a 4‑star FTSE4Good score, improved its Sustainalytics risk score to medium and lifted its corporate reputation index to 88%.

Regulatory and Cash Flow Enhancements

The IBR regulatory framework remained intact, with a key tweak allowing same‑year revenue recognition for contingent CapEx from 2025 onwards. The AFA mechanism was also tightened, cutting the cost‑recovery window from six months to about one month and improving Tenaga’s working capital profile and cash flow visibility.

Policy Uncertainty on New Data Centres

Management flagged emerging regulatory risk after public comments about restricting new data centres, particularly AI and GPU‑intensive facilities. While the current 4.5 GW of agreed supply remains intact, this uncertainty could slow new approvals and temper the pace of demand growth assumed in future plans.

Contingent CapEx Approval and Timing Risk

A large MYR 16.27 billion chunk of the RP4 allowance is classified as contingent CapEx requiring project‑by‑project approval, which may push spend later in the period. Tenaga expects to utilise about 80–85% of this pool, but admits that timing and regulatory decisions could affect how quickly associated revenue and returns materialise.

Elevated IT and Software Licensing Costs

Executives highlighted a noticeable uptick in computer software and IT spending, driven by licensing and cybersecurity requirements. They are negotiating usage‑based pricing to rein in these costs, but conceded that IT expenditure could stay elevated if talks do not fully succeed, potentially pressuring margins.

International Connectivity and Project Timelines

Tenaga’s Australian developments, including Dinawan, Walter Creek and Mallee, face grid connection and scheduling complexities typical of large renewable projects. These connectivity challenges may delay revenue recognition, underscoring that international growth contributions could be lumpier than the domestic regulated business.

One‑off Insurance Recoveries and Earnings Volatility

The generation segment benefited from insurance claim recoveries linked to events such as activity at Manjung 4, which management labelled as one‑off. These items helped FY2025 results but are not expected to recur regularly, meaning investors should adjust for potential volatility when comparing future earnings.

Tax Incentives and Effective Tax Rate Variability

Tenaga’s effective tax rate fell to about 22.8% in FY2025 due to recognition of investment allowances and tax incentives. However, management stressed that utilisation is conditional and suggested a more conservative long‑term effective tax rate of around 24%, signalling some ongoing variability in tax outcomes.

Phased Battery Deployment Linked to RE Growth

Plans for utility‑scale battery systems are being phased and tied to renewable energy penetration thresholds, estimated between roughly 6.5 GW and 13 GW. This approach supports grid stability but also means the timing and scale of battery investments, and associated revenues, will depend on how fast renewables roll out.

Forward‑looking Guidance and Strategic Priorities

For 2026, Tenaga is guiding to around MYR 18 billion in group CapEx, split between roughly MYR 13 billion regulated and MYR 5 billion non‑regulated, with regulated spending rising further in 2027. The company plans 1 million more smart meters, over 2,000 substation upgrades, new battery and EV charging deployments, solid demand growth of 4–4.5% and dividends kept near the upper end of its payout policy.

Tenaga’s earnings call painted the picture of a utility in expansion mode, combining strong financial performance with heavy investment in its grid and new growth areas such as data centres and EVs. While investors must watch regulatory shifts, cost trends and project timing, management’s confident guidance and rising dividends suggest the positive momentum is set to continue.