Investment Highlights

• We maintain BUY on Tenaga Nasional (TNB) with an unchanged DCF-based fair value of RM12.00/share (WACC: 7.0%, terminal growth rate: 2.0%). TNB is currently trading at FY22F PE of 10.9x and FY23F PE of 9.9x. We ascribe a three-star ESG rating to TNB.

• TNB has declared a final gross DPS of 18.0 sen, which brings total gross DPS to 40.0 sen for FY22F (FY21: 80 sen). We have forecast a similar gross DPS of 40.0 sen for FY23F, which implies a yield of 4.4%. We think that TNB may be conserving cash for acquisitions of renewable assets.

• TNB’s normalised net profit of RM4.7bil (adjusted for impairments, allowances for doubtful debts and forex changes but inclusive of MFRS16 impact) in FY21 was within our forecast and consensus estimates. Included in TNB’s FY21 reported net profit were impairments of RM276.4mil for GMR Energy.

• TNB’s normalised net profit rose by 23.4% in FY21 on the back of a 152.9% jump in the share of net profit in associates and joint ventures and strong hydro earnings in 1Q.

• TNB achieved an electricity sales volume growth of 1.2% in Peninsular Malaysia in FY21. Sales volume of electricity to the industries grew by 2.5% in FY21 while the residential sector used 5.2% more electricity.

• On a negative note, sales volume of electricity to the commercial sector fell by 3.7% in FY21 as hotels, shopping malls and educational facilities did not operate during MCO 3.0 in 2QFY21 and 3QFY21.

• TNG recognised an under-recovery of fuel costs of RM4,509.6mil in FY21 compared to an over-recovery of RM3,034.5mil in FY20. This was due to soaring coal costs. Under-recovery of fuel costs amounted to a larger RM3,208.8mil In 4QFY21 vs. RM1,313.5mil in in 3QFY21. Under RP2 Interim, the reference rates were US$67.45/tonne for coal and RM27.20/mmbtu for gas.

• Comparing 4QFY21 against 3QFY21, TNB’s normalised net profit rose by 10.5% to RM1.2bil partly due to a positive tax expense of RM170.5mil. TNB recognised a deferred tax asset of RM107.6mil in 4QFY21 resulting from reversal of temporary differences.

Source: AmInvest Research - 25 Feb 2022