Investment Highlights

• We maintain BUY on Tenaga Nasional (TNB) with an unchanged DCF-based fair value of RM11.80/share (WACC: 7%, terminal growth rate: 2%). We ascribe a 3-star ESG rating to TNB.

• TNB held a virtual briefing yesterday pursuant to the release of its 1HFY22 results on 30 August. Here are the key takeaways:

• The Malaysian government is expected to start making monthly payments in respect of the RM5.8bil ICPT receivables in September or October. The amount of the monthly payments was not disclosed.

• The government will also decide in December on the payment mechanism for the balance of the ICPT receivables. Recall that out of the RM19bil receivables as of 30 June, RM12bil or 63% were in respect of the ICPT payments. The balance RM7bil comprised mainly trade debtors.

• TNB will maintain its dividend payout of 30%-60% of normalised net profit. We forecast a gross DPS of 38 sen for FY22E, which implies a yield of 4.3% and payout of 50%.

• TNB plans to re-power the Paka and KEV power plants in future. The capex to re-power the 1,400MW Paka power plant is expected to be RM6.3bil. The PPA (power purchase agreement) for the Paka power plant is under negotiation currently.

• TNB’s effective tax rate is expected to decline in 2HFY22 from 42% in 1HFY22. TNB will be carrying out more capex in 2HFY22, which would result in higher reinvestment allowances. We have assumed an effective tax rate of 30% in FY22E vs. 18% in FY21.

• We continue to like TNB for its protected rate of return of 7.3% and undemanding FY23F PE of 10x (vs. 5-year average of 16x).

Source: AmInvest Research - 2 Sept 2022