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 neutral 3-star  ESG rating to TNB. 

• TNB’s normalised 1QFY23 net profit (excluding unrealised  forex changes and impairments but inclusive of MFRS16  impact) was within our forecast and consensus estimates. 

• TNB’s normalised net profit edged up by 1% YoY to  RM903mil in 1QFY23 as a decline in the effective tax rate compensated for higher repairs/maintenance and interest  expenses. 

• TNB’s effective tax rate slid to 16% in 1QFY23 from 44% in  1QFY22 in the absence of Prosperity Tax and deferred tax  charges. The Prosperity Tax amounted to RM113.9mil in  1QFY22 while deferred tax expenses were RM191.8mil. 

• Comparing 1QFY23 against 4QFY22, TNB’s normalised net  profit rose by 28% to RM1bil as repair and maintenance  expenses declined by 10%. General expenses also fell by  40.7% QoQ to RM412.4mil in 1QFY23.

• Sales volume of electricity in Peninsular Malaysia rose by  0.5% YoY in 1QFY23 driven mainly by the commercial sector. Electricity demand from the commercial sector  grew by 6.2% YoY in 1QFY23. Electricity demand from the  industrial sector slid by 3.4% while the residential sector  used 0.7% less electricity. 

• TNB’s receivables declined to RM19.7bil as at end-March  2023 compared with RM22.8bil as at end-December 2022.  Out of the RM19.7bil receivables, RM13.8bil involved ICPT  subsidies. 

• TNB recorded an under-recovery of fuel costs of RM3.6bil  in 1QFY23 vs. RM3.5bil in 1QFY22. The rise in the underrecovery of fuel costs can be attributed to higher costs of  coal and gas. Under RP3, the reference rates are  US$79/tonne for coal and RM26/mmbtu for gas. 

• TNB is currently trading at a FY24F PE of 12x, which is  lower than the 2-year average of 15x. Dividend yieldis also  compelling at 5% for FY24F.  

Source: AmInvest Research - 30 May 2023