Investment Highlights

• We maintain BUY on Tenaga Nasional (TNB) with a higher DC based fair value of RM13.00/share (vs. RM11.40/sha previously) based on WACC of 7% and terminal growth rate 2% while rolling over the base year of TNB’s DCF to FY24 from FY23. We ascribe a neutral 3-star ESG rating to TNB.

• Although we have trimmed TNB’s FY24F net profit by 10%, o recommendation is unchanged as TNB’s net profit is expecte to improve by 40.5% in FY24F in the absence of fuel marg losses.

• We have reduced TNB’s FY24F net profit by 10% to account f higher general, repair and maintenance expenses. W understand that the Janamanjung power plant experienced a outage in December 2023 and it would take time to rectify th problems.

• TNB has declared a final gross DPS of 28 sen, which bring total gross DPS to 46 sen for FY23 (FY22: 46 sen). We foreca a FY24F gross DPS of 48 sen, which implies a yield of 4.

• TNB’s results were 16% below our forecast and 25% short consensus. TNB’s results were disappointing as gener expenses surged higher than expected in 4QFY23. TNB general expenses climbed by 45.3% QoQ to RM1.5bil 4QFY23. Also, effective tax rate rose to 23% in 4QFY23 fro 17% in 3QFY23.

• TNB’s normalised net profit (excluding unrealised fore changes and impairments but inclusive of MFRS16) fell by 30 to RM2.9bil in FY23 from RM4.1bil in FY22 as GenCo swun into losses.

• GenCo recorded a net loss of RM526.8mil in FY23 compared a net profit of RM860.5mil in FY22 due to fuel margin losses RM618.7mil. There was also a step down in the capacity ra factor at some of the power plants. The fuel margin loss aros as coal inventory had to be marked to market at lower price The bulk of the coal was purchased at high prices in FY22.

• On a quarterly basis, GenCo’s net losses widened RM198.9mil in 4QFY23 from RM134.1mil in 3QFY23 due higher general, repair and maintenance expenses.

• Sales volume of electricity in Peninsular Malaysia rose by 3.6 in FY23. Although electricity demand from the commerci sector grew by 7.6% in FY23, the industrial sector’s demand f electricity fell by 1.9%.

• TNB is currently trading at a decent FY25F PE of 16x, which lower than its 2-year peak of 20x.

Source: AmInvest Research - 28 Feb 2024