Tenaga Nasional (TNB) reported a headline net profit of RM1bn (-16% YoY, +55% QoQ) for 3QFY20. The electricity demand and sales has improved compared to previous quarter as most of the Industrial (+23%) and Commercial (+26%) sectors were allowed to run at full capacity under the Recovery Movement Control Order (RMCO). Excluding one-off impairment on GMR Energy of RM51.6m, provision of doubtful debt of RM84m, TNB sales discount and contribution for Covid-19 of RM125m and forex gain of RM150m, core net profit for 3QFY20 was at RM1.1bn (-2% YoY). YTD 9MFY20 core net profit was RM3.1bn (-26% YoY), within expectations, accounting for 76% and 70% of fullyear estimates respectively. We maintain our forecasts for now. Our Neutral call on TNB is retained with unchanged TP of RM12.42.

• Improved QoQ electricity demand and sales. TNB reported lower YoY revenue in 3Q20 at RM11bn (-12%), mainly due to Imbalance Cost PassThrough (ICPT) being a rebate position of RM956.8m, compared to ICPT surcharge of RM203.8m. Total units sold for Peninsular during the quarter declined 2% YoY to 28,748 GWh, dragged by Commercial (-8%) (i.e. retails, accommodation and educational industry), but partially offset by higher Domestic sectors (i.e. Residential). Nevertheless, electricity demand has improved QoQ supported by Industrial (+23%) and Commercial (+26%) sectors as most are allowed to run at full capacity under RMCO (Figure 1). YTD 9MFY20, revenue dropped 13% YoY, largely due to the decline in certain customer segments, such as Commercial and Industrial which were affected by the Covid-19 outbreak. For the full year, TNB expects the overall electricity consumption to drop between 6-10% YoY.
• Lower generation cost cushioned the impact on earnings. Operating expenses declined 10% YoY in 3Q20 to RM9.56bn, mainly due to lower generation cost (-25%) given lower fuel price from coal and gas power plants (Figure 2). Its total generation cost during the quarter was 46% of Group’s operating expenses at RM4.4bn, compared to 55% in 3Q19. Overall, its core net profit declined marginally 2% YoY to RM1.1bn, bringing its 9MFY20 core net profit to RM3.1bn (-26% YoY).

Source: PublicInvest Research - 27 Nov 2020