Excluding RM1.1bn forex gain, Tenaga Nasional Berhad's (TNB) recorded a core net profit of RM445.5m for 3QFY24, marking a significant decline of 48.4% YoY and 65.6% QoQ. This was mainly due to lower imbalance cost pass through (ICPT) revenue by RM625.8m while reduction in operating expenses was only RM146.4m (due to lower fuel cost). Overall, the 9MFY24 results were below ours and consensus' full year estimates at 65.9% and 65.3% respectively with the deviation mainly coming from higher-than-expected operating cost . Nevertheless, we make no changes to our forecast as we anticipate that Genco segment will contribute positively as it is likely to record positive fuel margin due favourable coal price and forex movement while Manjung 4 is expected to be back online in 4QFY24. The electricity demand is continuously to grow at 6.1% YoY basis. The actual unit electricity sold in 9MFY24 exceeded forecasted base sales set in Regulatory Period 3 (RP3) by 11% and TNB has returned about RM1.7bn of revenue to government due to revenue cap and price cap mechanism. We expect the finalisation RP4 by December 2024 will be favourable to TNB. As such, we maintain our Outperform call and TP RM16.

• ICPT neutralises fuel costs volatility to Single Buyer, not a complete compensation. In 3QFY24, we observed that the Single Buyer actual generation cost dropped by RM563.3m on QoQ basis, although the fuel costs incurred by TNB and other independent power producers (IPP) only reduced by RM217m. This was likely due to intercompany transaction within TNB, between Genco and Single Buyer, in which, Single Buyer would incur lower expenses due to unplanned outage and penalty payment from Genco. Consequently, the ICPT surcharge would be lower, but expenses incurred by Genco (e.g. maintenance on shutdown and penalty) remain in the book and unclaimed.
• Genco recorded net profit RM107.3m in 3QFY24, lower from RM399.4m in 2QFY24, mainly due RM287.8 penalty charged for Manjung 4 outage. To recap, Manjung 4 was shutdown since December 2023 due to severe fractures in the intermediate pressure steam turbine but is expected to resume operation in October 2024. However, the penalty was partially offset by the claim from Southern Power Generation (SPG) amounted RM163m. Both costs were eliminated at Group, contra transaction with Single Buyer. On another note, Genco recorded negative fuel margin of RM92m for 9MFY24. We expect this to be reduced in 4QFY24 as applicable coal price (ACP) (generator's income) remains steady as compared to downtrend moving average price (MAP) (generator's cost).

Source: PublicInvest Research - 29 Nov 2024