Investment Highlights

• We maintain BUY on Tenaga Nasional (TNB) with an unchanged DCF-based fair value of RM14.60/share (terminal growth rate: 2.0%, WACC: 7.0%). TNB is currently trading at an undemanding FY20F PE of 14.0x.

• Under the Prihatin Rakyat Stimulus Package 2020, the government, together with TNB, have proposed to raise the electricity discounts from 15% to a range of 15% to 50% for a maximum usage of 600kW per month.

• The cost of the additional discounts is RM530mil. The cost of the electricity discount of 15% under the first stimulus package was RM500mil.

• TNB said that it would be setting aside RM150mil to fund the cost of the staggered discount under the Prihatin stimulus package.

• The balance of the cost of RM380mil will be funded by the government and the Energy Industry Fund. The Energy Industry Fund is financing the RM500mil cost of the electricity discounts under the first stimulus package.

• The cost of RM150mil, which TNB will be setting aside, is 3% of TNB’s FY20F net profit of RM5.0bil. Incidentally in December 2019, TNB transferred RM774mil to the Energy Industry Fund to aid in the stabilisation of the electricity tariff via a build-up of the fund.

• The Energy Industry Fund is financed by TNB, which returns savings from renegotiated power purchase agreements and excess returns from higher-than-expected revenue from the price and revenue caps in the RP2 (Regulatory Period) guidelines.

• Under the Prihatin Rakyat Stimulus Package 2020, a 50% discount is given for usage of 200kW per month and below, 25% discount for usage between 201kW and 300kW and 15% discount for usage between 301 and 600MW. The discounts start on 1 April 2020 and last for six months.

Source: AmInvest Research - 30 Mar 2020