Tenaga Nasional Berhad - ICPT Surcharge Continue For Non-Domestic

Date: 01/07/2019

Source  :  PUBLIC BANK
Stock  :  TENAGA       Price Target  :  14.12      |      Price Call  :  HOLD
        Last Price  :  10.72      |      Upside/Downside  :  +3.40 (31.72%)

Last Friday, Tenaga Nasional (TNB) announced that the new government has agreed to continue to impose an electricity surcharge of 2.55 sen/kwh for all non-domestic customers. Meanwhile, the surcharge for domestic customers (i.e. residential) will be funded by the Kumpulan Wang Industri Elektrik (KWIE) and the revenue adjustment of TNB under second regulatory period (RP2). The average base tariff remains unchanged at 39.45sen/kwh under RP2. This will however have a neutral impact on TNB’s earnings. Our target price is maintained at RM14.12, but due to limited upside we downgrade our call on TNB to Neutral.

  • The surcharges arise due to higher fuel and generation costs in the 1H19, which increased the electricity cost by RM1,592m. During the period, coal prices have risen to USD99.2/MT, compared to USD75/MT as set in the base tariff. The impact is however will be cushioned by the use of KWIE amounting to RM107m as well as revenue adjustment of TNB amounting to RM336.7m. To recap, there was excess revenue collected by TNB as stipulated by the Incentive Based Regulation (IBR) guidelines in RP2 of RM442.9m in FY18 and RM218.7m in 1Q19.
  • ICPT surcharge only for non-domestic customers. The remaining imbalance cost pass-through (ICPT) mechanism for 2H19 is RM1,148m, with the ICPT surcharge is however only applicable to non-domestic customers (i.e. Commercial and Industrial sectors) of 2.55 sen/kWh. For domestic (i.e. residential) customers, the ICPT surcharge will be funded by the balance in KWIE as well as excess revenue collected by TNB.
  • The ICPT mechanism will shield TNB from exposure to any fluctuations in fuel and generation costs. Any further increase of the electricity costs will be addressed by the ICPT mechanism every 6 months, hence neutral impact to TNB’s earnings.

Source: PublicInvest Research - 1 Jul 2019

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Labels: TENAGA

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