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TNB snaps three-day rally, erases two-week gain after 4Q earnings miss

Publish date: Wed, 28 Feb 2024, 11:24 AM

KUALA LUMPUR (Feb 28): Shares in Tenaga Nasional Bhd (TNB) snapped a three-day rally on Wednesday, as analysts trimmed their earnings forecasts, and some downgraded their calls, following the national electric utility firm’s weaker-than-expected quarterly results.

TNB fell nearly 4% to RM11, its lowest since Feb 14. At 9.30am, the stock was trading at RM11.10, valuing the company at RM64 billion, after more than 1.4 million shares changed hands. In contrast, the benchmark FBM KLCI was 0.3% lower.

Analysts said TNB’s earnings for the financial year ended Dec 31, 2023 (FY2023) missed consensus estimates by about 15%, and at least three downgraded their ratings for the stock, citing the recent rally that had limited further upside.

“We believe valuations have run ahead of fundamentals at this juncture,” said MIDF Amanah Investment Bank, which cut its rating to 'hold' from 'buy'. The stock is now trading at 15 times the projected earnings for FY2024, a premium to the historical average of about 13.5 times, the house noted.

TNB shares have rallied 11% so far this year, adding to over 9% gain in 2023, amid investor optimism that the company would benefit from the government’s renewable energy push under the National Energy Transition Roadmap (NETR).

A majority of 15 out of 21 analysts covering the stock still have 'buy' calls, followed by five 'hold' recommendations and one 'sell'. The median 12-month target price is RM11.99, according to Bloomberg, implying a potential gain of 8% from the current level.

“However, there is potentially a longer-than-expected gestation period for TNB to show strong earnings growth under the NETR, while its domestic power generation segment continues to face earnings deterioration,” said Hong Leong Investment Bank, which also cut its rating to 'hold' from 'buy'.

On Tuesday, TNB reported that its net profit fell 27.83% from a year earlier to RM583.9 million for the fourth quarter ended Dec 31, 2023 (4QFY2023), on the back of lower imbalance cost pass-through under-recovery and lower foreign exchange gains.

The weaker quarterly results dragged on FY2023, with full-year net profit down 20.01% to RM2.77 billion or 48 sen per share, from RM3.46 billion or 60.35 sen per share for FY2022.

The company also declared a dividend of 28 sen per share, bringing FY2023 dividends to 46 sen per share, unchanged from the previous year.

Dividend yields would be “decent” at 3%-4% for FY2024-FY2025, but valuations have become “rich” after the recent run-up in TNB's share price, said Kenanga Investment Bank, which lowered its rating to 'market perform', equivalent to a 'hold' call.

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