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 TENAGA 5347 TENAGA NASIONAL BHDB slips to seven-year low on tariff surcharge status quo

KUALA LUMPUR (June 27): Tenaga Nasional Bhd's (TNB) share price fell to a low of RM8.03 on Monday (June 27) morning, the lowest level since September 2015 based on Bloomberg data.

The counter earlier opened at RM8.16, and saw some 1.33 million shares traded at the time of writing.

The stock has been on a downward trend since May 27, 2022, when it closed at RM9.25,. It has not closed past RM8.10 year-on-year, according to Bloomberg. It is also noted that the last time TNB’s price closed below RM8 was on Sept 8, 2015 at RM7.94.

Since last Friday, based on Bloomberg, two research firms held a “buy” call or “outperform” respectively for TNB, while four were “neutral” or “hold” and one called it “underperform”. Target prices (TPs) given were in the range of RM7 to RM13.40.

Prime Minister Datuk Seri Ismail Sabri Yaakob announced last Friday that the current first half of 2022 (1H22) imbalance cost pass-through (ICPT) rebate of two sen/kWh for domestic consumers and 3.7 sen/kWh surcharge for non-domestic consumers will remain unchanged in 2H22.

Following the announcement, TNB said in a bourse filing that the impact of the ICPT implementation is neutral on TNB and will not have any effect on its business operations and financial position.

In a report on Monday, MIDF Research maintained its “neutral” call on TNB but reduced its TP from RM9.55 to RM8.45 after projecting TNB to have a higher working capital.

MIDF said while the government had also announced that it will provide a subsidy of RM5.8 billion to cover the increase in TNB’s generation cost during 1H22, fuel prices however will remain elevated moving into 2H22.

TNB procures coal and natural gas for Peninsular Malaysia's power generation.

“We cut our DCF (discounted cash flow)-based TP to RM8.45 (from RM9.55) as we factor in the impact of higher working capital into our FCF (free cash flow) projections,” the research house said.

“The government’s subsidy alleviates some concerns over TNB’s 1H22 under-recovery. However, given that fuel prices remain elevated moving into 2H22, we still expect TNB’s under-recovery and working capital requirement to remain elevated which in turn are expected to pressure FCF generation.”

It highlighted that high fuel prices had resulted in TNB significantly under-recovering generation cost.

“TNB’s under-recovery stood at RM3.5 billion in the first quarter of 2022 (1Q22), a further rise versus RM3.2 billion and RM1.3 billion in 4Q21 and 3Q21 respectively. Exacerbating this was a weaker ringgit, which will further inflate effective fuel cost,” MIDF said.

It added that TNB’s receivables had seen significant uptick in the past two quarters given the lag in passing through generation cost under-recovery amid high fuel prices.

According to a chart by MIDF, TNB’s receivables stood at RM14.07 billion in 1Q22, RM10.55 billion in 4Q21 and RM4.97 billion in 3Q21.

MIDF also lowered its dividend payout assumption to 40%, which is at the lower range of the group’s 30% to 60% payout policy.

“Given the minimal total upside (6.9%) and a less optimistic dividend outlook, which had been TNB’s key appeal, we keep our 'neutral' call on TNB,” MIDF said.


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