• Tenaga Nasional (TNB) and the Inland Revenue Board (IRB) have signed two consent orders in respect of the judicial review proceedings for the issue of the reinvestment allowances for the years of assessment (YAs) 2015 to 2018.
• Some of the key terms of the consent orders include the following:
  • The IRB agrees to remit all penalties imposed for the YAs 2013 to 2018 amounting to RM2.4bil. Accordingly, the IRB will issue the notifications of reduced assessment within 30 days from the date of the consent orders.
  • TNB will pay a sum of RM1.8bil out of the remaining disputed additional taxes of RM5.4bil for the YAs 2013 to 2018. However, the sum of RM1.8bil will still be available to TNB if the High Court rules in favour of TNB.
  • The IRB has agreed to withdraw its objections against the judicial review application filed by TNB to challenge the notices of additional assessment for the YAs 2015 to 2018.
• We are neutral on this development. The consent orders do not mean that the tax disputes are over. TNB will continue to challenge the notices of additional assessment for YAs 2015 to 2018 by way of judicial review. What is positive is that the tax penalties for YAs 2013 to 2018, have been withdrawn.
• Also, TNB said that the RM1.8bil, which will be paid to the IRB, would be recognised as tax recoverable in the balance sheet until all legal proceedings have been exhausted.
• We believe that this means that the RM1.8bil will not be recognised in the P&L statement. The sum of RM1.8bil would have been about 44.9% of TNB’s normalised net profit of RM3.9bil estimated for FY20E.
• The court hearing date in respect of the notice of additional assessments for YA 2018 is 16 February 2021 while the hearing date for YAs 2015 to 2017 is 2 March.
• We maintain BUY on TNB with a fair value of RM13.95/share.

Source: AmInvest Research - 4 Jan 2021