• Tenaga Nasional (TNB) announced that the High Court had allowed with cost TNB’s judicial review application to set aside IRB’s notice of additional assessment of RM1.8bil for YA2018.

• The High Court had agreed that TNB is entitled to claim reinvestment allowance for its capex as TNB manufactures electricity. In addition, TNB had already claimed its capex as reinvestment allowance in YA2003.

• We view this positively as the ruling may set a precedent for TNB's other legal suits against the IRB. TNB received additional tax assessments amounting to almost RM6.1bil for YA2013 to YA2017 in respect of the reinvestment allowances for TNB's capex for the expansion and upgrading of its electricity infrastructure.

• In addition, late last year, TNB's 60%-owned Kapar Energy Ventures received notices of assessment for YA2011 to YA2014 and additional notices of assessment for YA2013 to YA2018 amounting to RM595.9mil in total in respect of the tax deductibility of the interest expense from RULS (redeemable unsecured loan stock).

• For YA2015 to YA2017, the substantive court hearing has been fixed on 16 March 2022. For the tax assessments for YA2013 and YA2014, the outcome depends on the judgment by the Special Commissioners of the Income Tax and the KL High Court. This is still pending.

• There is no earnings impact as TNB has never made a provision for all of its potential tax liabilities in its P&L statement. However, the court win may boost the sentiment on TNB's shares.

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

Source: AmInvest Research - 9 Feb 2022