TENAGA 5347 TENAGA NASIONAL BHD expects ICPT to amount to RM16.4b in 1H2023

 TENAGA 5347 TENAGA NASIONAL BHD expects ICPT to amount to RM16.4b in 1H2023

KUALA LUMPUR (Dec 9): Tenaga Nasional Bhd (TNB) expects Imbalance Cost Pass-Through (ICPT) to amount to RM16.4 billion for the implementation period of January to June 2023 (1H2023), versus RM7 billion in 2H2022, according to analysts.

“Management is confident the new government will continue to honour the ICPT mechanism [as it has been since its implementation in 2014], and TNB will be able to recoup the entire amount within six months,” said Hong Leong Investment Bank (HLIB) Research in a note.

It said TNB recognised accrual of some RM15.2 billion in ICPT in the nine months ended Sept 30, 2022, as fuel input cost was higher than reference prices.

It noted that gas cost was RM30 per mmbtu for Tier 1 and averaged RM39.5 per mmbtu (versus the reference of RM26 per mmbtu), and coal cost was RM910.50 per MT (versus the reference of RM325.72 per MT).  

HLIB said the Energy Commission had approved for RM7 billion in ICPT (RM5.8 billion subsidised by the Government) in 1H2022 to be recovered in 2H2022.  

Meanwhile, CGS-CIMB in a note said TNB’s management had clarified that its ICPT receivables are high, due to the timing mismatch between the upfront payment made by TNB and the recovery of surcharges via the ICPT framework.  

It estimated that the Government had paid RM4.8 billion out of the approved RM5.8 billion in ICPT as of November 2022, and provided a government guarantee of RM6 billion to support TNB’s working capital, which had received approval from the Ministry of Finance.

“TNB submitted the proposal to the Energy Commission in September 2022, and there are ongoing discussions with the regulator, including options proposed for the pass-through implementation,” added CGS-CIMB.

Given the improved cash flow outlook for the second half ending Dec 31, 2022 (2HFY2022), HLIB said the management had indicated a potential dividend in the higher range of its 30% to 60% dividend payout policy (based on adjusted profit after tax and minority interest).

“This will likely entail 45 to 50 sen per share for the year (20 sen per share for 1HFY2022),” it said.  

HLIB maintained its "buy" call on TNB, with an unchanged discounted cash flow-derived target price (TP) of RM11.65, as earnings are expected to remain stable in FY2022-23.

CGS-CIMB kept its "add" call and TP at RM13.60, based on 15 times FY2024 price-earnings ratio (its five-year historical PER). The house said TNB is poised to benefit from Malaysia’s energy transition, namely additional grid investments and renewable energy opportunities, which could boost its earnings and improve the public’s environmental, social and governance perception of TNB.  

“Stronger-than-expected earnings from associates and favourable Regulatory Period 3 parameters are key potential rerating catalysts. The key downside risks are weaker contributions from associates and potential sector reforms/regulatory changes that could negatively affect TNB’s earnings,” it added.

PublicInvest Research, which has an "outperform" call with a TP of RM12.42 for TNB, said the utility company aims to reduce 35% of its greenhouse gas emission intensity and reduce 50% of its coal capacity by 2035.  

It noted that TNB’s goal to become coal-free by as early as 2050 and increasing its earnings before interest and tax by about 140% to RM19 billion while bringing its carbon emission intensity to zero by 2050 is underpinned by future generation sources, new green businesses and the grid of the future. It estimated TNB to have an annual expenditure of RM10 billion to RM20 billion over the next 30 years.

The house noted that TNB's third quarter ended Sept 30, 2022 core net profit came in at RM1.29 billion (up 21.4% year-on-year), and for the cumulative nine months, group core net profit stood at RM3.24 billion (up 8.9% year-on-year).

Group revenue year-to-date (YTD) was higher by 46%, mainly due to higher under-recovery in ICPT of RM15.92 billion.  

Meanwhile, operating expenses rose by 54.9% year-on-year to RM46.51 billion, mainly due to higher generation cost. 

Despite the higher operating profit, profit after taxation YTD eased 4.3% to RM2.75 billion, mainly due to higher foreign currency translation losses, finance cost and tax expenses, which included Cukai Makmur (the one-off prosperity tax) in FY2022 amounting to RM414.3 million.

http://www.theedgemarkets.com/article/tnb-expects-icpt-amount-rm164b-1h2023