KUALA LUMPUR (July 4): Tenaga Nasional Bhd (KL:TENAGA) is facing a RM5.05 billion tax bill after the Federal Court ruled that it is not eligible to claim reinvestment allowance (RIA), which is meant for manufacturers, according to the utility company's 2024 annual report.
The court sided with the Inland Revenue Board (IRB) over a RM1.25 billion tax assessment for 2018, reversing earlier rulings that had favoured Tenaga. The court found that Tenaga is a utility company, not a manufacturer, and should have claimed investment tax allowance (ITA) under Schedule 7B, not RIA under Schedule 7A.
Tenaga plans to now pursue claims under Schedule 7B and warned that the ruling may impact its earnings and net assets in FY2025.
According to information in the utility company's 2024 annual report, the dispute with the IRB dates back to 2015. Between 2013 and 2021, the IRB issued RM9.25 billion in additional tax assessments to Tenaga. After RM2.44 billion in penalties were waived through settlements, Tenaga’s net potential liability was reduced to RM6.81 billion.
Tenaga paid RM1.76 billion in December 2020, leaving an estimated RM5.05 billion still outstanding.
Tenaga continued to claim the RIA for the years 2022 and 2023, and had said in its 2024 annual report that it would claim for 2024 as well, as permitted by the law.
On Thursday, Tenaga shares dropped as much as 74 sen (over 5%) to their lowest since June 3, closing at RM14.02 and losing over RM3 billion in market value. Trading volume was over four times the 20-day average.
Analysts warned of risks from large provisions and possible effects on other court cases. Despite this, most analysts remain positive — with 19 “buy”, four “hold”, and no “sell” ratings. The stock is down about 6% year-to-date, with a 12-month target price of RM16.28, suggesting 16% upside, according to Bloomberg.
CIMB Securities said if Tenaga pays the full RM5.05 billion, it could lower its target price by 87 sen (5.5%). However, if Tenaga succeeds in claiming ITA, core earnings may stay intact. While the tax charge could wipe out FY2025’s forecasted RM3.78 billion net profit, it is seen as a one-off impact.
Tenaga posted a 69.3% jump in FY2024 net profit to RM4.69 billion, its highest since FY2018, up from RM2.77 billion the year before. The rise was mainly driven by foreign exchange gains and higher electricity sales, while annual revenue rose 6.9% year-on-year (y-o-y) to RM56.74 billion.
In the first quarter of FY2025, net profit climbed nearly 48% year-on-year to RM1.1 billion, despite being partially offset by higher tax expenses. Revenue for the quarter rose 17.6% y-o-y to RM16 billion.
As of end-March, Tenaga held RM16.8 billion in cash and had RM7.05 billion in receivables, deposits and prepayments.