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’s normalised FY22 net profit of RM4.1bil (excluding unrealised forex changes and impairments but inclusive of MFRS16 impact) was within our forecast but 7% below consensus estimates. TNB’s 4QFY22 normalised net profit slid by 50% QOQ to RM706mil as general expenses surged by 82% to RM1.4bil.

• TNB has declared a final gross DPS of 26 sen, which brings FY22 total gross DPS to 46 sen. This translates into a yield of 4.8%. We forecast an FY23F gross DPS of 50 sen, which implies a compelling yield of 5.2%.

• TNB’s FY22 normalised net profit slid by 19% to RM4.1bil due to a 25% rise in repair and maintenance expense, a higher effective tax rate and an increase in depreciation charges.

• Effective tax rate rose to 34.1% in FY22 from 19.2% in FY21 as TNB recognised Prosperity Tax of RM340.8mil and higher deferred tax expenses. Depreciation expense increased by 6.7% to RM11.4bil in FY22 due to the commissioning of Edra Energy’s power plant in February 2022.

• Sales volume of electricity in Peninsular Malaysia improved by 6% in FY22 on the back of strong demand from the commercial sector. Recall that the commercial sector was affected by Covid lockdowns in FY21.

• Electricity demand from the commercial sector grew by 15.9% in FY22 while the industrial sector consumed 3.3% more electricity. Electricity demand from the residential sector edged down by 0.5% in FY22.

• TNB’s receivables rose marginally. Receivables stood at RM22.8bil as at end-December vs. RM22bil as at endSeptember. TNB attributed the high receivables to the timing mismatch between upfront recognition of ICPT subsidies and the monthly payment instalments made by the government.

• TNB recorded a larger under-recovery of fuel costs of RM22.3bil in FY22 compared with RM4.5bil in FY21. The surge in the under-recovery of fuel in FY22 was driven by the climb in coal and gas costs.

• TNB is currently trading at a bargain FY23F PE of 12x, which is lower than the 2-year average of 15x, and offers an attractive dividend yield of 5%.

Source: AmInvest Research - 28 Feb 2023