Tenaga Nasional - Tariff Maintained in 2H19

Date: 01/07/2019

Source  :  HLG
Stock  :  TENAGA       Price Target  :  13.65      |      Price Call  :  HOLD
        Last Price  :  13.66      |      Upside/Downside  :  -0.01 (0.07%)

The Energy Commission has announced the continuation of ICPT mechanism in 2H19. Tenaga incurred RM1.6bn higher than assumed fuel cost generation in 1H19, which Tenaga will recoup RM107m from KWIE, RM337m through IBR revenue adjustments and RM1,148m from tariff surcharges. Effective average tariff remain unchanged for domestic at 39.45s/kWh and non-domestic at 42.0s/kWh. Following the recent surge in share price, we downgrade Tenaga to HOLD (from Buy) with unchanged TP of RM13.65 based on DCFE valuation.


Energy Commission (EC) has announced the continuation of ICPT (Imbalance-Cost Past-Through) for Jul-Dec 2019 with unchanged average base tariff rate of 39.45s/kWh. Tenaga will pass-through RM1,592.1m of higher than assumed fuel cost generation for Jan-Jun 2019, mainly due to the high average coal pricing of USD99.235/mt (vs. benchmark USD75/mt). Funding for the RM1,592m will be recovered through:

1) RM107.2m – KWIE fund (Kumpulan Wang Industri Electrik)

2) RM336.7m – IBR cost and revenue adjustments

3) RM1,148.2m – ICPT cost past through to Commercial and Industry users

Domestic customers (above 300kWh/month) will remain being subsidized and not affected by the ICPT surcharge. Hence, this category will continue to enjoy the unchanged average tariff at 39.45sen/kW.

Non-domestic customers i.e. Commercial and Industry customers will continue be charged with unchanged ICPT surcharge of 2.55sen/kWh, effectively maintaining the average tariff rate at 42.00sen/kWh.


Neutral impact to Tenaga. We remain positive on the ICPT implementation, as Tenaga will be able to recoup its higher fuel generation costs of RM1.6bn incurred in 1H19. The new government remains committed in the ICPT implementation, despite certain quarters complaining on the high electricity costs and urging government to review the tariff rate.

Downgrade to HOLD, TP: RM13.65. Following the recent surge in Tenaga’s share price, we downgrade Tenaga to HOLD recommendation (from Buy) with unchanged DCFE-derived TP: RM13.65. Tenaga’s earnings and cash flow are expected to be stable under the IBR/ICPT mechanisms.


Source: Hong Leong Investment Bank Research - 1 Jul 2019

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