Effective Lower Tariff for Non-domestic in 2H20

Energy Commission (EC) has announced the continuation of ICPT mechanism in 2H20. There will be no ICPT surcharges/rebates in 2H20, indicating effective lower tariff of 39.45s/kWh for Commercial and Industry users in 2H20 (vs. 42.00sen/kWh in 1H20), the effective tariff remains at 39.45s/kWh for domestic users. We believe the excess income (lower fuel cost vs benchmark price) will be channelled into the KWIE fund. Maintain BUY on Tenaga with unchanged TP of RM13.20 based on DCFE valuation.

NEWSBREAK

Energy Commission (EC) has announced the continuation of the ICPT (Imbalance Cost-Past-Through) mechanism for 2H20 with unchanged average base tariff rate of 39.45s/kWh. There will be no surcharge/rebate of ICPT for the period, despite the average coal price of USD69.5/mt and reference gas price at RM26.60/mmBTU lower than the benchmark coal price of USD75/mt and benchmark gas price of RM27.20/mmBTU. The effective tariff for non-domestic users will be reduced to 39.45s/kWh in 2H20 vs. 42.00s/kWh in 1H20.

HLIB’s VIEW

Neutral impact to Tenaga. We remain positive on the continuation of ICPT for the period. We believe the excess income of fuel will be channelled into the KWIE fund, which will be subsequently used to subsidise the various tariff rebates and discounts measures during MCO period. The new government remains committed in the ICPT implementation.

Maintain BUY, TP: RM13.20. We maintain BUY recommendation on Tenaga with unchanged DCFE-derived TP: RM13.20. Tenaga’s earnings and cash flow are expected to be stable under the IBR/ICPT mechanism. Dividend is expected to remain stable at 50-60sen/share.

Source: Hong Leong Investment Bank Research - 2 Jul 2020