• The Energy Commission has announced the tariff surcharge for electricity users for the period of 1 January to 30 June 2023. This is in accordance with the Imbalance Cost Passthrough Mechanism whereby the costs of coal and gas are passed on every six months in the form of a surcharge or rebate.

• The tariff for all users except those in the commercial and industrial (C&I) sectors, will not be affected as they would continue to be subsidised by the government.

• The tariff surcharge for the C&I sectors will be 20 sen/kWh in 1H2023 compared with 3.7 sen/kWh currently. The government is still partly subsidising the C&I users as the overall tariff surcharge was supposed to be 27 sen/kWh in 1H2023. Electricity tariffs have gone up as the costs of energy have surged by RM16.2bil.

• The government’s electricity subsidies amount to RM10.7bil in 1H2023. Out of these, RM8.8bil are in respect of the residential sector while RM1.9bil are for commercial and industrial users.

• There is no impact on Tenaga Nasional’s (TNB) net profit in FY23F as the group recognises the higher fuel costs in the form of increased revenue every 3 months. There is a lagged cash flow impact as the tariff surcharge to users is only imposed every 6 months.

• We maintain BUY on TNB with a fair value of RM11.80/share. TNB is currently trading at a FY23F PE of 10x, which is lower than its 2-year average of 15x.

Source: AmInvest Research - 19 Dec 2022