• Tenaga Nasional (TNB) announced that the Malaysian government has decided to maintain an ICPT (Imbalance Cost Pass-Through) rebate of 2.00 sen/kWh for all customers including domestic customers with a monthly consumption of 300kWh and below, for 2H2021.

• The tariff rebate was 2.00 sen/kWh in 1H2021.

• The actual rebate in 2H2021 is 1.13 sen/kWH but the government has decided to maintain the electricity tariff by giving a discount of 0.87 sen/kWh. The discount of 0.87 sen/kWh translates into roughly RM493mil, which will come out from the Energy Industry Fund.

• The tariff rebate in 2H2021 was partly the result of overall reduction in generation costs in 1H2021.

• Although coal costs increased marginally in 1H2021, the cost of gas fell. TNB recognised an over-recovery of costs of RM327.3mil in 1QFY21.

• In 1H2021, TNB’s average gas price was RM17.16/mmbtu vs. the reference rate of RM27.20/mmbtu under RP2 (Regulatory Period) Interim guidelines. TNB’s average coal price realised was US$70.06/tonne in 1H2021 compared with the reference price of US$67.45/tonne.

• As mentioned in previous reports, there is no earnings impact on TNB from the tariff rebate or surcharge. TNB recognises the higher or lower fuel costs via an under or over-recovery of costs in the revenue line every financial quarter.

• However, the actual cash received or returned is only recognised every six months when the government announces a tariff rebate or tariff surcharge.

• TNB is currently discussing with the Energy Commission on the parameters for the RP3, which will take effect from 2022F to 2024F. Some of the parameters include the required rate of return and reference rates for coal and gas. Discussions are expected to be completed in 4QFY21.

• We maintain BUY on TNB with a fair value of RM12.00/share.

Source: AmInvest Research - 29 Jun 2021