Investment Highlights

• We affirm BUY on Tenaga Nasional (TNB) with an unchanged DCF-based fair value of RM12.60/share (terminal growth rate: 2.0%, WACC: 7.0%). TNB is currently trading at an undemanding FY21F PE of 12.4x and FY22F PE of 11.9x.

• TNB has declared final and special gross DPS of 58.0 sen for 4QFY20, which brings total gross DPS to 80.0 sen for FY20. We forecast an unchanged gross DPS of 80.0 sen for FY21F, which translates into a yield of 8.0%.

• We have also assumed an electricity sales volume growth of 6.0% for TNB in FY21F after a decline of 5.0% in FY20.

• TNB’s FY20 normalised net profit of RM3.9mil (adjusted for impairments, forex losses, electricity discounts and Covid- 19 donation but including MFRS16 impact) was within our forecast although 9% below consensus.

• TNB recorded a 19.7% fall in in its normalised net profit in FY20. The decline in TNB’s normalised net profit in FY20 can be attributed to net impairments of RM490.3mil on receivables, lower finance income and higher depreciation and interest expenses. Also, TNB’s electricity sales volume dipped by 5.0% in FY20.

• Breaking it down, electricity demand from the industrial sector slid by 7.6% in FY20 while sales volume to the commercial sector shrank by 12.1%. On a positive note, electricity demand from the domestic sector rose by10.2% in FY20.

• TNB recognised an over-recovery of fuel costs of RM3.0bil in FY20 against an under-recovery of costs of RM1.9bil in FY19. The over-recovery of fuel costs came about as fuel costs fell below the reference rates stipulated in the RP2 guidelines.

• Comparing 4QFY20 against 3QFY20, TNB’s normalised net profit improved by 20.0%. This was due to a positive tax expense of RM310.2mil, resulting from the reinvestment allowance incentives.

• TNB’s electricity sales volume eased by 1.0% QoQ in 4QFY20. The QoQ drop in sales volume in 4QFY20 was mainly due to a 3.7% slide in sales to the commercial sector. Sales volume of electricity to the industrial and domestic sectors was flat QoQ in 4QFY20.

Source: AmInvest Research - 1 Mar 2021