Friday 09 Jun 2023
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KUALA LUMPUR (Feb 28): Analysts believe Tenaga Nasional Bhd’s (TNB) receivables should have marked a peak, as coal price have trended down, and see improving cash flow putting the utility giant on a better earnings path.

TNB’s receivables in the fourth financial quarter ended Dec 31, 2022 (4QFY2022) ballooned to RM22.83 billion, up 2.36% from RM22.3 billion as at 3QFY2022.

In the last two months, TNB’s share price has fallen 2.03% to RM9.46. The stock was at its highest at RM9.95 a share on Feb 15.

At the noon break on Tuesday (Feb 28), TNB shares settled at RM9.46, representing a 14.3% potential upside to analysts' average target price (TP) of RM10.81.

Hong Leong Investment Bank (HLIB) in a note on Tuesday maintained its “buy” call on TNB, with a TP of RM11.65, and said the receivables increased due to timing mismatch of imbalance cost pass-through (ICPT) recognition and recovery.

The research outfit expects receivables to drop in the coming quarters, following the higher approved ICPT amount of RM16.2 billion for the first half of 2023 (1H2023) and the downtrend of global coal prices in recent months.

“The government has already paid RM4 billion in January, out of RM10.4 billion in subsidies. The remaining portion will be paid in five equal instalments. The management is also guiding for ICPT of RM12 billion for 2H2023, based on current fuel price trends,” HLIB said.

PublicInvest Research, meanwhile, maintained its “outperform” call on TNB, with a TP of RM12.42, stating that TNB remains confident that the ICPT matter will be resolved.

“Timing mismatch between the upfront payment made by TNB and recovery of the surcharges has resulted in an expansion in its receivables and borrowings.

"Nevertheless, the group remains confident that the situation will be resolved in 1H2023, with the remaining ICPT receivables (RM16.9 billion or 76.8% of receivables) to be paid in five equal instalments,” said PublicInvest.

Additionally, it added, moderating fuel and coal prices based on recent trends suggesting an easing in TNB's working capital requirements in FY2023.

Similarly, Kenanga Research in a note said that it expects constraints on TNB’s cash flow to be gradually alleviated, in line with the improved cash flow outlook.

“We anticipate improvements in regulated capital expenditure roll-outs, which will re-accelerate the expansion of TNB’s regulated asset base, hence improving regulated earnings recognition. Additionally, the effective tax rate is expected to be reduced, given the absence of Cukai Makmur (the one-off prosperity tax),” Kenanga said.

Kenanga, however, downgraded TNB to “market perform” from “outperform”, with a TP of RM10 from RM10.17, noting that TNB missed its earnings forecast due to higher interest cost and debt.

On the other hand, Maybank Investment Bank in a research note on Tuesday maintained “hold” on the counter, with an unchanged TP of RM10.

“With coal prices having trended down in 2023 to date, we believe receivables could have peaked in 4QFY2022,” Maybank said in the note.

MIDF Research in a note on Tuesday also downgraded TNB to “neutral” from “buy”, while keeping its TP unchanged at RM10.

It said although TNB’s receivables rose marginally to RM22.83 billion, it expects this to be the peak before tapering off from 1QFY2023 onwards, on the back of higher ICPT surcharges (20 sen/kWh from 3.7 sen/kWh for high voltage commercial and industrial consumers) and higher subsidies (raised to RM10.8 billion for 1H2023, from RM5.8 billion for 2H2022) as per the Energy Commission’s December 2022 announcement.

“At the same time, given the steep fall in global coal prices, ICPT under-recovery from 1QFY2023 onwards is expected to ease meaningfully. As such, we expect previous constraints on TNB's cash flow to be gradually alleviated,” the research outfit said.

Edited BySurin Murugiah & Lam Jian Wyn
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