PublicInvest Research

Tenaga Nasional Berhad - Broadly In Line

Publish date: Tue, 30 May 2023, 10:35 AM
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Tenaga Nasional Berhad’s (TNB) 1QFY23 reported core net profit of RM904.3m  increased by 9.2% YoY and 102.6% QoQ respectively. At operating profit level,  results were mixed (-12.1% YoY, +38.8% QoQ) due to volatility in coal prices.  However, this decline in operating profit on a YoY basis was offset by the absence of Prosperity Tax impact in 1QFY22. Overall, the Group’s performance is broadly  in-line with our estimates at 20%, but slightly below consensus at 19% of fullyears numbers. Over the medium to longer term, we are upbeat on the Group’s works in the pipeline on regional grid interconnection with multiple neighbouring countries following the Government’s lifting on the ban on cross border renewable energy (RE) sales. We make no changes on our earnings forecast for now. We retain our Outperform call with an unchanged DCF-derived TP of RM12.42 on the back of stable electricity demand and its potential as a regional RE hub.

  • Stable demand. The Group recorded higher revenue by 3.9% with overall electricity demand growth of 0.8%, largely lifted by the commercial segment  (+6.2% YoY), in tandem with Malaysia’s GDP growth of 5.6% in 1QFY23.  Its peak demand reached a new-high of 19,716MW in May 2023 from  19,183MW in 2022 likely due to the notably warmer weather.
  • Coal price fluctuation impacted generation segment. On a YoY basis,  the Group’s generation segmental revenue increased by 19.2% with the  proportion of unit generated from coal plant increasing significantly to 39%  from 34%. However, its segmental operating profits declined by 39.9%  owing to high coal price volatility with average coal price delivered  increasing by 7.3% YoY.
  • Easing working capital strain. The Group recorded a higher cash balance  of RM9.6bn after it received RM4.0bn out of RM10.4bn in cost recovery outstanding from the Government. It expects the remaining balance will be  fully paid by June 2023. The increasing cash balance will ease its working  capital requirements, in addition to moderating coal prices from 2Q 2023  onwards.
  • Upbeat on regional interconnection. The lifting of RE export ban will benefit the Group as both power generator and grid operator, with Malaysia  strategically located near to Singapore, which has strongest demand of RE  imports with much higher tariff. This could materialise soon as the Group is in the midst of finalising relevant agreements and licensing for the  interconnection with Singapore. The Group also recently announced  collaboration with Electricite Du Laos, Laos and Saigon Gia Dinh Electric  Joint Stock Company, Vietnam to strengthen the ASEAN Power Grid (APG) and toward becoming an RE hub for the ASEAN region

Source: PublicInvest Research - 30 May 2023

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