• The recent quarterly results of the power companies were mixed. Tenaga Nasional’s (TNB) FY21 normalised net profit (excluding forex and impairments but including MFRS16 impact) was within our forecast and consensus estimates.

• On the other hand, Malakoff and YTL Power’s net profit fell short of estimates. Malakoff was hit by a forced outage at the TBE power plant and write-off of assets while YTL Power was dragged by high fuel costs in Singapore and costs in relation to a corporate social programme.

• Electricity sales volume growth in Peninsular Malaysia was unexciting at 1.2% in FY21 (FY20: -5.0%). Sales volume of electricity in Peninsular Malaysia in FY21 was driven mainly by the industrial and residential sectors.

• Sales volume growth of electricity to the industrial sector was 2.5% in FY21 while the residential sector used 5.2% more electricity. The commercial sector’s demand for electricity fell by 3.7% in FY21.

• Going forward, we have forecast an electricity sales volume growth of 1.7% for FY22F. This is in line with the growth assumption stipulated in RP3. We believe that the commercial sector’s demand for electricity will improve in FY22F after being shut down for the most of FY21.

• Dividend payments dropped in FY21. TNB declared a lower gross DPS of 40 sen in FY21 compared to 80 sen in FY20. We believe that TNB is conserving cash for acquisitions and capex. Malakoff has not declared any dividend for 4QFY21 yet.

• As for rising fuel costs, we believe that the ICPT (Incentive Cost Pass Through) framework will be honoured. As such, the surge in coal and gas costs would be reflected in higher tariff surcharges to the commercial and industrial sectors in 2H2022.

• TNB’s coal and gas supplies have not been affected by the war in Ukraine yet. Less than 10% of TNB’s coal supplies are from Ukraine. TNB sources its coal mainly from Indonesia and Australia.

• We maintain our OVERWEIGHT stance on the power sector with a BUY on TNB with a fair value of RM12.00/share. We have HOLDs on Malakoff with a fair value of RM0.79/share and YTL Power with a fair value of RM0.67/share.

Source: AmInvest Research - 8 Mar 2022