MARC Ratings has affirmed Tenaga Nasional Berhad’s (TNB) corporate credit rating at AAA with a stable outlook.

TNB’s strong credit profile reflects its monopoly on electricity transmission in Peninsular Malaysia and Sabah, its status as the largest domestic electricity producer, distributor and retailer, and the favourable incentive-based regulation framework under which it is able to recover its fuel costs and earn a commensurate rate of return for capital expenditure. MARC Ratings assesses the likelihood of government support to TNB to be very high based on TNB’s strategic importance as the country’s principal energy provider. Accordingly, the rating agency has provided a two-notch uplift to TNB’s standalone rating.

The rating agency notes that TNB has evolved its strategy in line with the rapid changes in the domestic energy industry. These include its capital investments that are generally aligned with the government’s National Energy Transition Roadmap; going forward, renewable energy sources would drive capacity expansion. TNB’s exposure to risk is also limited as changes made in energy supply regulations that would result in the entry of third-party electricity suppliers in September 2024 are expected to only impact TNB’s retail business.

Revenue grew by 4.3% y-o-y to RM53.1 billion in 2023 on higher electricity sales to commercial and domestic users. Pre-tax profit, however, declined to RM3.4 billion in 2023 from RM5.3 billion in 2022 due to negative fuel margins of RM618.7 million from its generation segment, and higher repair and maintenance costs for its distribution network. The rating agency anticipates broadly steady earnings for TNB in 2024, based on the expected narrowing of negative fuel margins and moderate impact on capacity payments from an outage incident that occurred at one of the units at its TNB Janamanjung coal plant in December 2023.

Cash flow from operations grew to RM32.2 billion in 2023, benefiting from the collection of RM12.2 billion in outstanding Imbalance Cost Pass-Through receivables. This has been partly utilised to pare down debts; nonetheless, new borrowings incurred for grid improvement and ongoing hydroelectric projects led to only a slight improvement in overall borrowings, which have declined to RM60.4 billion as at end-March 2024 (2023: RM61.8 billion). Capital spending — both non-regulated and regulated capex — is expected to increase going forward in line with the utility’s energy transition goals; however, leverage, as reflected by a debt-to-equity ratio of 1.0x, is not anticipated to increase substantially. This view is based on the staggered expansion plans that would be aided by internal cash generation and available liquidity.