KUALA LUMPUR (Dec 26): The removal of rebates for high consumption households will indirectly led to a reduction in the imbalance cost pass-through (ICPT) receivables for Tenaga Nasional Bhd (TNB) in the first half of 2024 (1H2024) as the government is expected to subsidise lesser number of households, according to TA Securities Holdings Bhd.

“Note that in early November 2023, TNB received RM2.35 billion ICPT cost recovery for the July to September 2023 period. The government’s commitment to uphold the ICPT mechanism has aided in reducing the group’s ICPT receivables.

“Evidently, the utility giant’s ICPT receivables has declined over the past quarters in tandem with the drop in fuel costs and consistent payment received from the government. The expected continuous drop in ICPT receivables will improve Tenaga’s cash flow and potentially lead to higher dividend payment,” the research firm wrote in a note on Monday.

As at end-November, TNB’s receivables stood at RM14.55 billion, 36% lower than the RM22.83 billion recorded a year earlier.

TA Securities said the latest announcement of the tariff revision does not come as a surprise as this was already announced in Budget 2024. The revision is expected to have a ‘neutral’ impact on TNB’s earnings for the financial year ending Dec 31, 2024 (FY2024).

The research firm reiterated its ‘buy’ call for the stock with an unchanged target price (TP) of RM11 based on a discounted cash flow valuation, using a discount rate of 7.2% and a growth rate of 1.4%.

According to the Energy Commission, electricity tariffs for commercial and industrial customers will remain unchanged but the targeted subsidy mechanism for households will be widened via the removal of rebates for users with monthly electricity consumptions exceeding 600 kilowatt-hour (kWh) until 1,500kWh. These households will no longer qualify for the two sen/kWh rebate available previously.

About 85% of domestic users are unaffected by the new tariff and 99% of domestic users are still receiving subsidies from the government, the commission said.

Total subsidies for 1H2024 amounted to RM1.9 billion, which is significantly lower than the RM5.2 billion seen in 2H2023 and RM10.8 billion in 1H2023, as costs of coal and natural gas have trended lower.

Meanwhile, Public Investment Bank Bhd (Public Invest) has maintained its ‘outperform’ call for TNB with an unchanged TP of RM11.50, as it views the ICPT implementation has a ‘neutral’ impact on the group in tandem with down-trending fuel cost.

“TNB has submitted [a] proposal for RP4 [Regulatory Period 4] to the regulator in early December 2023 with [the] key theme 'Delivering our customer’s energy needs and facilitating Malaysia’s Energy Transition',” Public Invest said in a separate note.

“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 funding,” it added.

At the time of writing on Monday, TNB was one sen or 0.1% lower at RM9.98, with some 125,600 shares traded. At this price, the group was valued at RM57.76 billion.

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