KUALA LUMPUR: The commissioning of the 3GW coal generation capacity and a 50MW solar project will drive Tenaga Nasional Bhd
's earnings growth, says Moody's Investors Service
A Moody's vice president and senior analyst Abhishek Tyagi said on Monday these two projects will underpin the power giant's earnings growth over the next two to three years.
The ratings agency said Tenaga's (A3, stable) financial results for the fiscal year ended Aug 31, 2017 (FY2017) were in line with its expectations and continue to support its A3 senior unsecured ratings. The outlook on the rating is stable.
Tenaga's estimated financial leverage, as measured by funds from operations/debt and retained cash flow to debt (RCF/debt) was around 29% and 24% respectively.
These parameters are within rating expectation but do not factor in Moody's standard adjustments.
Total electricity sales of 116.6TWh for FY2017 remained flat year-on-year (YoY).
However, Tenaga's FY2017 overall revenue increased by 6.5% YoY, after factoring in the adjustment for the Imbalance Cost Pass-Through (ICPT) mechanism.
The ICPT mechanism allows Tenaga to reflect changes in fuel and generation costs in consumer's electricity tariff every six months, subject to the government's approval.
Tenaga's reported earnings before interest, tax, depreciation and amortisation (Ebitda) increased by 4.6% on-year to RM15.5bil in FY2017 compared to the same period last year.
After adjusting for the forex translation loss and reinvestment allowance, Tenaga's FY2017 net profit reported a 8.5% decline mainly due to increased finance cost and taxation.
The finance cost increased by 40.1% YoY mainly due to the interest paid to the government on Power Purchase Agreement (PPA) Savings Fund of RM130mil, as well as accrued interest on the Islamic Sukuk programmes amounting to RM100mil.
The interest accrued on PPA Savings Fund should be minimal going ahead as the government utilised RM1.3bil of this fund to bear subsidy costs associated with ICPT during the year, leaving a small balance in the PPA Savings Fund.
The interest accrued on the PPA Savings Fund was recognised following a newly gazette Federal Government Electricity Supply (Electricity Industry Fund) Order in April 2017.
The PPA Savings Fund was set-up by the Government of Malaysia (A3, stable) in 2013 to accumulate savings from the renegotiation of PPAs with the first generation Independent Power
Producers (IPPs).
“Over the next 12-18 months, we expect Tenaga's cash interest coverage to be in the range of 6x-8x and its RCF/debt to be in the range of 17%-25%,” said Tyagi.
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