Tenaga Nasional's Q2 Earnings: Navigating Profit Decline Amid Strategic Energy Transition Investments

Tenaga Nasional Berhad (TNB) reported Q2 2025 net income of 1.16 billion ringgit, with earnings per share (EPS) at 19.9 sen—slightly below the estimated 23.0 sen [1]. While this represents a marginal decline compared to expectations, the company’s total revenue rose to 16.84 billion ringgit, driven by an 18% year-over-year increase in electricity sales revenue to 16.29 billion ringgit [1]. This growth underscores TNB’s resilience in a sector transitioning from fossil fuels to renewables, even as it faces short-term headwinds from litigation-related tax exposures and a 34% drop in goods and services revenue [1].

The profit decline, however, must be contextualized within TNB’s aggressive capital expenditures. In 1H 2025, the company allocated RM5.2 billion to reliability and energy transition projects, including grid modernization and renewable infrastructure [2]. These investments have already yielded measurable improvements, such as a reduction in the System Average Interruption Duration Index (SAIDI) to 23.56 minutes per customer [2]. Such metrics highlight TNB’s commitment to balancing immediate operational stability with long-term decarbonization goals.

Malaysia’s National Energy Transition Roadmap (NETR) aims for 70% renewable energy capacity by 2050, with solar power as the dominant source [3]. TNB is at the forefront of this transition, with 40% of its RM42.9 billion capex allocated to renewables and infrastructure upgrades [4]. Flagship projects like the 2.5 GW hybrid hydro floating solar (HHFS) initiative at Kenyir Reservoir and a green hydrogen hub in Terengganu—developed in partnership with PETRONAS—position TNB as a regional leader in clean energy innovation [1]. These projects align with Malaysia’s broader targets to reduce coal’s share in the power mix from 31% in 2018 to 18.6% by 2040 [1].

Despite high debt (debt-to-equity ratio of 92.8%), TNB’s operating cash flow covers 41.1% of its debt, and its interest coverage ratio stands at 2.8x [5]. Analysts have issued 14 “buy” and 3 “hold” recommendations, reflecting confidence in TNB’s strategic direction [1]. The company’s Smart Scores also highlight strong performance in dividends, growth, and momentum [1], suggesting that its long-term value creation is underpinned by both financial discipline and policy alignment.

Challenges remain, including the need for grid flexibility to integrate intermittent renewables and the financial risks of phasing out coal. However, TNB’s progress—having achieved 48% of its 8.3 GW renewable target by 2025 [5]—demonstrates its ability to execute on ambitious goals. The company’s international solar projects in the UK, expected to commission in Q2 2025, further diversify its revenue streams and reinforce its role as a global energy transition player [2].

For investors, TNB’s Q2 earnings signal a company navigating short-term profit pressures while laying the groundwork for sustained value creation. Its alignment with Malaysia’s energy transition, coupled with strong analyst sentiment and operational improvements, positions it as a resilient long-term play in a sector poised for transformation.

Source:
[1] TNB Earnings: Tenaga Nasional Reports Q2 Net Income of 1.16 Billion Ringgit Amid Revenue Growth [https://www.smartkarma.com/home/newswire/earnings-alerts/tnb-earnings-tenaga-nasional-reports-q2-net-income-of-1-16-billion-ringgit-amid-revenue-growth/]
[2] TNB Drives Nation-Building And Empowers Communities 2025 [https://www.bernama.com/en/news.php/?id=2461803]
[3] Solar and grid flexibility critical for Malaysia's future electricity affordability and security [https://ember-energy.org/latest-insights/solar-and-grid-flexibility-critical-for-malaysia/]
[4] TNB doubles investment to $9.8 billion to push Malaysia's energy transition [https://www.reccessary.com/en/news/tnb-doubles-capex-to-strengthen-malaysia-energy-transition]
[5] Tenaga Nasional Berhad Balance Sheet Health [https://simplywall.st/stocks/my/utilities/klse-tenaga/tenaga-nasional-berhad-shares/health]