KUALA LUMPUR (Nov 27): Tenaga Nasional Bhd’s shares retreated in early trade on Monday, after the utilities giant’s latest quarterly results missed analysts’ forecasts, as costs ran above expectations despite higher electricity demand and easing risk over collections from the government.

The stock fell seven sen or 0.7% to RM9.93 as at 10:46am, valuing it at RM57.47 billion. It was thinly traded with only 498,800 shares changing hands. The stock had trended to a low of RM9.92.

RHB Research, Hong Leong Investment Bank (HLIB) and Kenanga Research are among those who reduced their target prices following the quarterly result, which saw net profit drop 3.7% to RM856.2 million for the third quarter ended Sept 30, 2023 (3QFY2023), from RM888.9 million a year ago, no thanks to negative fuel margin.

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Higher sales of electricity drove revenue up by 3.9% to RM13.47 billion in 3QFY2023, from RM12.96 billion in 3QFY2022.

“We deem the results below our expectation and consensus [expectations], dragged by the loss-making domestic power generation (affected by negative variation of Applicable Coal Price and actual coal cost), as well as higher non-fuel operational costs,” said HLIBg, which kept a “buy” rating with a lower target price of RM11.00, from RM11.75 previously.

The investment bank said Tenaga’s earnings may continue to deteriorate in 4QFY2023, due to usual timing of accelerated operating expenditure during the quarter.

RHB Research also cut its earnings estimates for FY2023 to FY2025 by 6%-12%, to account for Tenaga’s negative fuel margins and lower joint venture and associate’s contributions.

Nonetheless, RHB Research said it continues “to like Tenaga for being a key National Energy Transition Roadmap (NETR) beneficiary, largely from the potential earnings upside from higher transmission and distribution (T&D) assets and a potential strong ramp-up in the domestic renewable energy (RE) presence”.

Kenanga Research, on the other hand, expects Tenaga’s earnings to improve in the coming quarters, on the back of tapering fuel costs.

“Tenaga will be able to recoup fuel costs it is entitled [to] under the ICPT (Imbalance Cost Pass-Through) mechanism, which are higher as compared to the actual fuel costs it incurs due to timing difference,” said the research house, which kept its “outperform” rating on Tenaga with lower target price of RM11.45, from RM11.90.

Kenanga Research trimmed Tenaga’s net profit forecasts by 12% for FY2023 and 7% for FY2024, to reflect higher negative fuel margin assumption and operating costs.

Nevertheless, it said it continues to like Tenaga for its dominance in Malaysia’s power industry, defensive earnings in a resilient domestic economy, and assets that are largely regulated, with a “decent” dividend yield of 3%-4%. 

https://www.theedgemarkets.com/node/691451