PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 24 Jan 2020, 2:52 PM


Tenaga Nasional Berhad - Lower ICPT Surcharge

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Tenaga Nasional (TNB) announced that the Government has agreed to impose an electricity surcharge of 2 sen/kwh for all non-domestic customers (i.e. Commercial and Industrial) for 1H2020, lower compared to the 2.55 sen/kwh surcharge in FY19. Meanwhile, the surcharge for domestic customers (i.e. Residential) will continue to be funded by the Kumpulan Wang Industri Elektrik (KWIE). The average base tariff remains unchanged at 39.45sen/kwh under the second regulatory period (RP2: 2018-2020). We upgrade our call on TNB to Neutral (previously Trading Sell) with an uncharged target price of RM14.12, as share price had indeed slumped in immediate reaction to news of the additional RM4bn tax assessment by IRB, but has since stabilized.

  • ICPT surcharge only for non-domestic customers. For 1H2020, the imbalance cost pass-through (ICPT) surcharge for non-domestic customers (i.e. Commercial and Industrial) has been set at 2 sen/kWh (FY19: 2.55 sen/kWh). Meanwhile, the ICPT surcharge for domestic customers (i.e. Residential), will be funded by the balance in KWIE amounting to RM62.95m. Under RP2, any shortfall or excess in the ICPT will be used from or transferred to consumers via the KWIE. For 2H2019, TNB will transfer a total of RM774m to the KWIE fund to aid in the stabilisation of the electricity tariff through a revenue adjustment (Figure 1).
  • The lowered surcharges for non-domestic customers was due to reduction in actual costs from July to December 2019, although the actual average coal prices are still above the benchmark fuel prices set in the base tariff for RP2. During the period, average coal prices were around USD77.35/MT, compared to USD75/MT as set in the base tariff. Meanwhile regulated piped gas price also increased to RM28.70/mmBtu (vs 2H2019: RM27.20/mmBtu).
  • The ICPT mechanism will shield TNB from exposure to any fluctuations in fuel and generation costs. Any further increase in electricity costs will be addressed by the ICPT mechanism every 6 months, hence resulting in neutral impacts to TNB’s earnings.

Source: PublicInvest Research - 9 Dec 2019

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