Tenaga Nasional (TNB) reported a headline net profit of RM1.2bn in 4QFY20. Excluding forex gain of RM220m and allowance for doubtful debt of RM104m, its core net profit for the quarter was at RM1.1bn. This brings its FY20 core net profit to RM4bn, which came in within our but below consensus expectations at 97% and 92% of full year estimates respectively. Profit after tax in 4Q was higher QoQ mainly due to tax credit on the reinvestment allowance incentive claim. Nevertheless, core earnings for full year FY20 declined 14% YoY mainly due to lower revenue as the Commercial and Industrial segments were affected by the Covid-19 outbreak and higher finance cost due to newly commissioned plant, Jimah East Power. No changes to our forecast for now. TNB proposed a final dividend of 18 sen and a special dividend of 40 sen during the quarter, bringing the full year dividend to 80 sen per share. Maintain Outperform.

• Lower revenue from lower electricity demand and over-recovery of ICPT. Revenue for 4Q20 was impacted by lower sales of electricity (-14%) and higher ICPT adjustment. Total units sold for Peninsular in 4Q20 decreased 1.1% YoY at 28,454 GWh, with demand from Commercial sector declined 11% YoY mainly from Retails, Educational and Accommodation sectors. This however partially mitigated by higher demand from the Domestic sector (+12%). TNB also recorded an over-recoverability of ICPT amounting to RM1.56bn, compared to RM81m in 4Q19, mainly due to lower fuel prices. For FY20, revenue fell 14% YoY to RM44bn due to lower electricity demand from both Industrial (-7.6%) and Commercial (-12%) sectors affected by the Covid-19 outbreak.

• Higher operating profit due to lower generation cost. In 4Q20, its operating profit grew by 10% YoY to RM1.7bn despite the lower revenue, as its operating expenses dropped by 21% YoY on the back of lower generation cost (-36%). Both gas and coal prices declined by 61% and 9% respectively. In addition, earnings was also cushioned by higher tax credit resulting from the claim of the reinvestment allowance incentive. For full year FY20, core net profit fell by 14% YoY to RM4bn mainly due to lower revenue recorded, lower finance income resulting from lower interest rates and higher finance cost from newly commissioned plant, Jimah East Power, but partially offset by tax credit in 4Q20.

• Final and special dividend. The Group proposed a final single tier dividend of 18 sen and special dividend of 40 sen for the quarter, bringing full year dividend to 80 sen per share, translating to a dividend yield of 7.9%.

Source: PublicInvest Research - 1 Mar 2021