Tuesday 26 Sep 2023
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KUALA LUMPUR (May 30): Tenaga Nasional Bhd (TNB) shares slipped as much as 2.56% in the morning session on Tuesday (May 30), after its latest quarterly results came in slightly below analysts' consensus, due to the impact of coal price fluctuations on its power generation segment's earnings.

The latest quarter ended March 31, 2023 (1QFY2023) saw TNB's bottom line rising 12.23% to its highest in six quarters at RM1 billion or 17.42 sen per share, but this was supported by lower tax expenses by RM490 million, coupled with higher average tariffs, while electricity demand rose 0.5%.

The latest quarterly results stood at 19.5% of the FY2023 consensus estimate. Analysts covering the stock retained their calls, but consensus earnings were revised lower by 0.12%, Bloomberg data showed.

HLIB Research, which had the highest "buy" call in its last review in March, slashed its FY2023 earnings forecast for TNB by 7.5%, and by 6.4% for FY2024, and lowered its target price (TP) to RM12, from RM12.20 previously.

The domestic power generation segment was loss-making, HLIB said in a separate note, due to the coal price variation, as well as a step-down in capacity rate financials (CRF) for certain plants since 3QFY2022.

CRF is a component of capacity payment, which is a payment to power plants for having the capacity readily available.

The utility firm is “leveraging the economic recovery in 2023”, it said. “The management is also committed towards its dividend payout policy of 40% to 60% of the group’s adjusted net profit,” it added.

Coal prices rose 12% on average from the same quarter last year, which coupled with higher gas prices raised generation costs to 27.2 sen/kWh, from 24.8 sen/kWh, said Kenanga Research in a report.

On TNB's receivables, analysts also expect it to recoup by June the remaining RM5.1 billion payment from the government for fronting the difference in generation fuel costs under the Imbalance Cost Pass-Through mechanism in the second half of 2022.

“This shows the government’s commitment to the IBR (Incentive-Based Regulation) framework,” said Kenanga, which maintained its "outperform" call, citing tapering fuel costs and TNB's dividend yield of above 4%.

“We believe fuel cost under-recovery will gradually reduce in tandem with the significant easing in global coal prices,” said MIDF Research, which maintained its "neutral" call at RM10, following the recent rally, with unchanged earnings forecasts for FY2023 and FY2024.

Meanwhile, PublicInvest Research pointed out that TNB saw a new peak demand of 19,716MW in May, from 19,183MW in 2022, due to higher demand arising from the hot weather.

The stable electricity demand supports its TP of RM12.42, the research house said.

TNB operates the power generation business locally and overseas, the regulated transmission and distribution business in Peninsular Malaysia, Sabah and Labuan, as well as electricity retail business.

At Tuesday's noon market break, shares in TNB had rebounded slightly to RM9.58, still down 17 sen or 1.74%. The counter was down 0.52% since the start of the year.

Edited BySurin Murugiah
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