Excluding net foreign gains (FX) of RM362.8m, Tenaga Nasional Berhad’s (TNB) 4QFY22 reported core net profit of RM446.3m dipped by 47.9% YoY and 65.4% QoQ respectively. This brings the Group’s FY22 core net profit to RM3.6bn, contracting by 3.8% YoY. Overall, the Group’s performance was below our and consensus estimates at 89% and 85% of full-year numbers respectively, mainly dragged by higher financing cost and higher tax expense. The Group recorded higher revenue by 39.1% YoY including an Imbalance Cost Pass-Through (ICPT) portion of RM22.3bn. It also recorded higher operating cost by 45.1% YoY to RM64.6bn however, due to heightened fuel and coal prices. As a result, the Group’s receivables and borrowings expanded at almost a similar quantum c.RM12bn amid timing mismatch between upfront payment made by TNB and recovery of the surcharges via the ICPT framework. However, the Group remains confident it will fully recover the outstanding ICPT in 1HFY23, with moderating commodity prices expected to ease strains on its working capital. We maintain our Outperform call with an unchanged DCF derived TP of RM12.42 on stable domestic electricity demand. On a side note, TNB declared a final dividend of 26sen, bringing total dividend for FY22 to 46sen.

• Robust electricity demand. Excluding ICPT, the Group recorded higher revenue by 5.7%, driven by stronger demand across the board following border and economic reopening, led by the Commercial segment (+15.9%YoY) and Industrial (+3.3% YoY). Overall, Peninsular Malaysia’s electricity demand recorded a robust growth of 6% in FY22.

• ICPT to be resolved. the Group recorded higher ICPT revenue by RM17.8bn and higher operating expenses by RM20.1m due to heightened fuel and coal prices. Timing mismatch between the upfront payment made by TNB and recovery of the surcharges has resulted in its receivables and borrowings expanding by RM12.3bn to RM22.8bn and RM12.2bn to RM63.9bn respectively. Nevertheless, the Group remains confident the situation will be resolved in 1HFY23 with the remaining ICPT receivables (RM16.9bn or 76.8% of receivables) to be paid in five equal instalments. Additionally, moderating fuel and coal prices based on recent trends suggesting an easing in its working capital requirement sin FY23.

• Honouring dividend policy. Despite tightening working capital conditions, the Group continues to honour its dividend policy with a 30%- 60% payout ratio based on adjusted PATAMI. TNB declared a final dividend of 26sen, bringing total dividend for FY22 to 46sen. This translates a 55.2% dividend payout ratio and 4.8% dividend yield, relatively attractive at current share price level.

Source: PublicInvest Research - 28 Feb 2023