Tenaga Nasional (TNB) announced that the Government has agreed to continue the implementation of Imbalance Cost Pass Through (ICPT) for 1H 2024. The new ICPT introduces Domestic users with monthly consumption of 601kWh to 1,500kWh no longer eligible for 2sen/kWh rebate. Other Domestic users remain unchanged i.e monthly consumption up to 600kWh still eligible for 2sen/kWh rebate and above 1,500kWh will be imposed a surcharge of 10sen/kWh. Meanwhile, surcharge on non-domestic users are unchanged. According to Energy Commission, about 85% of domestic users are unaffected with new tariff and 99% of domestic users are still receiving subsidy from Government. A lower subsidy of RM1.9bn is allocated for the period of 1H2024 in tandem with downtrending fuel cost. The continuation of ICPT implementation has neutral impact on TNB as it reflects the changes in fuel and other generation-related costs in the electricity tariff every six months. We maintain our Outperform call on TNB, with unchanged TP of RM11.50.

• Minimal impact. Domestic users with monthly consumption of 601kWh to 1,500kWh (monthly bill of RM220.35 to RM708.20) will no longer eligible for 2sen/kWh rebate. Effective 1 January 2024 until 30 Jun 2024, the group of users will have a slight incremental on their bills at range of RM12 to RM30 per month. This represents about 4.2% to 5.5% of increase from their current bill.

• The lower subsidy allocation of RM1.9bn for 1H 2024 as compared to RM5.2bn for 2H 2023 is in tandem with lower fuel cost and removal of rebate from the said group of Domestic users. Coal Futures price has moderated from the average of USD206.6/MT in 1H 2023 to USD141.1/MT in 2H 2023. Despite of the coal price moderation, it is expected that the coal price still above the Regulatory Period 3 (RP3) 2022-2024 benchmark price of USD79/MT for 1H 2024, thus subsidy remains required but with lower amount.

• RP4 will be key focus in 2024. TNB has submitted proposal for RP4 to regulator in early December 2023 with key theme “Delivering our customer’s energy needs and facilitating Malaysia’s Energy Transition”. We expect more policies will be ironed out to provide more clarity and encourage investment in energy transition such as Third Party Access (TPA) to the grid and green energy export framework. This is to ensure the sustainability of the system and self-sufficiency capital expenditure (capex) funding.

Source: PublicInvest Research - 26 Dec 2023