• Tenaga Nasional (TNB) has announced that the Malaysia government has approved a reduction in the tariff surcharge from 2.00 sen/kWh in 1H2020 to 0.00 sen/kWh in 2H2020 for non-domestic users.

• The tariff surcharge was reduced as fuel costs fell below the reference rates stipulated in the RP2 guidelines (Regulatory Period 2), in 1H2020.

• The benchmark prices in RP2 are US$75/tonne for coal and RM27.20/mmbtu for gas.

• The tariff surcharge or rebate is imposed above or below the base tariff rate of 39.45 sen/kWh.

• There is no earnings impact on TNB.

• TNB had already recognised the over-recovery of fuel costs (when fuel costs are below the reference rates) in its 1QFY20 results.

• TNB recognises the over-recovery or under-recovery of fuel costs in its P&L Statement every quarter.

• We maintain BUY on TNB with a fair value of RM13.95/share.

Source: AmInvest Research - 2 Jul 2020