This article first appeared in The Edge Financial Daily, on December 10, 2015.

Tenaga Nasional Bhd
(Dec 9, RM13.36)
Maintain outperform with an unchanged target price of RM14.97: The third extension of electricity tariff rebate has been announced for the period January to June 2016 following the first period of March to June 2015 and subsequently July to December 2015.

Tariff rebates for the first half of next year will be lower at 1.52 sen/ kilowatt-hours (kWh) compared with 2.25sen/kWh from March to December 2015 for Peninsular Malaysia.

Nevertheless, the rebate will be maintained at 1.2sen/kWh for Sabah and Labuan due to lower global oil prices as the state does not have an imbalance cost pass-through (ICPT) mechanism.

The government had also announced the increase of regulated piped gas price for the power sector from RM16.70/million British thermal units (mmbtu) to RM18.20/mmbtu with effect from Jan 1, 2016.

Under the incentive based regulation framework, the regulated gas price for the first 1,000 million standard cu ft per day would be increased by RM1.50/mmbtu every six months until it reaches the market price, as part of the energy subsidy rationalisation programme.

Favourable generation cost contributed by strong performances of coal-fired power plants and lower consumption of liquefied natural gas resulted in net ICPT savings of approximately RM762 million for the period July to December 2015.

The announcement of tariff rebates and regulated gas price hike on a timely basis proves the commitment of the government and Energy Commission in implementing the power sector reform through the IBR framework.

We expect the next announcement for the subsequent review period to be in June 2016.

TNB will benefit from the ICPT framework as it would shield the group from exposure to fluctuations in fuel and generation costs moving forward.— PublicInvest Research, Dec 9