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.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....