KUALA LUMPUR (Dec 15): The possible tariff hike for bigger outfits, including multinational companies, which will allow some direct cost pass-through, is positive for Tenaga Nasional Bhd's (TNB) cash flow but the Imbalance Cost Pass-Through (ICPT) payment remains the overhang issue, said analysts.
As such MIDF Research views the development as "mild" positive, maintaining its "neutral" call on TNB with target price (TP) at RM8.45.
Earlier this week, Prime Minister Datuk Seri Anwar Ibrahim hinted at preliminary indications on electricity tariff, which is scheduled to be announced towards end-December.
There were two key parts to the announcement, which are a tariff hike for the "giant companies" such as multinational exporters, as well as unchanged tariffs for small and medium enterprises (SMEs) and domestic consumers.
MIDF Research analyst Hafriz Hezry said the decision appears to allow for some pass-through of TNB’s elevated ICPT receivables through selective non-domestic consumers, but the definition of "giant companies" is still unclear to determine whether these consumers make up a large portion of demand.
“Nonetheless, the decision should bring cheer to domestic consumers and SMEs in the non-domestic sector as tariffs are expected to remain status quo. This should also alleviate concerns on domestic inflationary pressure had the government gone ahead with a blanket tariff hike,” he wrote in a note on Thursday (Dec 15).
Hafriz also noted that the second part of the PM’s announcement suggests that TNB may still rely on subsidy payments from the government — which is essentially paid on behalf of electricity consumers — to recoup its ICPT under-recovery.
“A key detail to look out for is timing and magnitude of these subsidy payments as this will critically determine the peak in Tenaga’s ICPT receivables trend and the resultant cash flow constraint,” he said.
Hong Leong Investment Bank (HLIB) Research analyst Daniel Wong said this positive development indicates the new government’s commitment towards the ICPT framework, protecting TNB’s earnings from fuel energy cost volatility.
Wong maintained his "buy" call on TNB with unchanged TP of RM11.65 given its stable earnings and dividend payout. “TNB’s earnings are expected to remain stable in FY2023. We are positive with Tenaga’s long-term commitment into the ESG [environmental, social and governance] growth path, while ensuring returns to shareholders,” he said.
Overhang on timing and magnitude of ICPT subsidy payment remains
TNB’s ICPT receivables stood at RM12.1 billion as at the end of the first half this year (1H2022) of which RM5.8 billion was subsidised by the government.
An estimated RM1.6 billion was collected via a three sen/kwh surcharge for the non-domestic sector, while a decision on dealing with the remaining amount was deferred, according to MIDF's Hafriz.
“By year-end, TNB is expected to see its ICPT receivables rise to RM16.4 billion, translating to an estimated ICPT surcharge of 27 sen/kwh if passed through over the next six months, or a 68% increase versus base tariff of 39.95 sen/kwh,” he explained.
HLIB’s Wong, meanwhile, estimates a surcharge of 27.7 sen/kwh based on the RM16.4 billion ICPT in 1H2023.
“We expect [this] to burden everyone and [pose] risk to inflation and economic recovery if the new government decides not to subsidise the amount. Hence, we believe the new government is implementing a balanced approach to protect the needed end-user group while supporting economic recovery,” Wong commented.
At the time of writing, TNB’s share price was five sen or 0.54% lower at RM9.29 with
some 252,700 shares traded. At this price, TNB was valued at RM53.45 billion.
The stock was trading at a historical price-to-earnings ratio of 15.14 times, with a dividend yield of 4.09%
