In a filing with Bursa Malaysia, EITA said the contracts are expected to commence any time from the date of the official receipt of the LoAs. They are expected to complete in 490 to 730 days from the date of commencement.
KUALA LUMPUR: CIMB Equities Research is maintaining its target price of RM17.60 for Tenaga Nasional pegged to a CY19F price-to-earnings (P/E) of 14 times, the sector average.
It said on Friday Tenaga should at least trade on par with its peers given its decent yield and return on equity (ROE).
CIMB Research is keeping its Add call on Tenaga as it believes the power giant’s current undemanding valuation was largely due to the uncertainty over the tariff review for the Incentive-based Regulation (IBR) under RP2 (2018-2020).
“We believe this concern eased with the electricity base tariff rate revised up to 39.45 sen/kWh until 2020,” it said.
To date, the Energy Commission (EC) has yet to officially publish any material information of RP2 on its website after the briefing.
The average base tariff is reset to 39.45 sen/kWh for RP2, which is in accordance to the average selling price (ASP) of 39.45 sen/kWh for RP1.
The higher ASP vs. average base tariff of 38.53 sen/kWh for RP1 was due to changes in customer mix.
Therefore, Tenaga was earning a higher regulated return of c.8-9% vs. 7.5% for RP1 due to the higher ASP, and it retained the additional revenue generated.
“However for RP2, Tenaga will likely no longer enjoy the higher ASP as the new average base tariff has reflected the changes in customer mix.
“Any surplus from the additional revenue should be channeled back to Kumpulan Wang Industri Elektrik (KWIE),” it pointed out.
RP2’s regulated return is revised down to 7.3% vs. 7.5% for RP1, but the higher asset base is expected to more than offset the earnings downside.
According to Tenaga, the RP1’s closing asset base was RM43.6bil while RP2’s closing asset base by 2020 is expected to be RM54.4bil. The approved capex and opex for RP2 is RM18.8bil and RM18.2bil, respectively.
The EC earlier said the announced RM929mil imbalance cost pass-through (ICPT) rebate of RM1.80 sen/kWh for the period of Jan 1 to June 30, 2018, will be borne by Tenaga via savings from unused expenditures (c.RM2.5bil) approved in RP1.
“According to Tenaga, it has made adequate provisions on the savings from the financing cost and depreciation of the unutilised expenditures throughout the RP1 period. Hence, the ICPT cost should not have material impact on Tenaga’s earnings,” said CIMB Research.
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