CIMB Research retains Hold for Tenaga at RM16.70


  • Analyst Reports
  • Monday, 02 Jul 2018

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 retaining its Hold call for Tenaga Nasional at RM16.70 although the uncertainty arising from the continuity of the imbalance cost pass through
(ICPT) has eased. The last traded price was RM14.64.

The research house had on Monday expressed concerns that firstly, the amount in Kumpulan Wang Industry Elektrik (KWIE) remains unknown and may not be able to fund the next ICPT surcharge for domestic customers.

Secondly, the coal price was still stubbornly high at an average of US$97 a tonne (Indonesian coal benchmark price), and thirdly, earnings risks persist given that stable regulated earnings may not be able to offset the earnings downside from the expected step-up in tax rate due to a reduction in reinvestment allowance.

Last Friday, , the Energy Commission (EC) announced that the Malaysian government has approved the continued implementation of the ICPT mechanism for July 1 to Dec31, 2018. 

The average base tariff is unchanged at 39.45 sen/kWh. The ICPT implementation is only applicable in Peninsular Malaysia whereas the implementation of incentive-based regulation (IBR) in Sabah and Labuan was postponed to Jan 1, 2019.

CIMB Research said due to the higher fuel and generation costs for January to June 2018, (average coal price of US$92 a tonne vs. the estimated coal price of US$75 under regulatory
period 2, RP2), the additional cost of RM698mil or a 1.35 sen/kWh ICPT surcharge will be passed through via ICPT for the period of July to Dec 31, 2018. The ICPT rebate of 1.52
sen/kWh for the previous period ended on Saturday.

For industrial and commercial customers, the ICPT surcharge of 1.35 sen will be applicable. The electricity bill for commercial and industrial customers will likely trend slightly higher after the ICPT surcharge, even after factoring in the 0% GST impact. 

Excluding the GST factor (assuming GST remains at 6%), the non-domestic electricity cost should increase by an average 6-8%.

“We leave our forecasts unchanged as the impact of ICPT implementation is neutral on Tenaga and will not affect its business operations and financial position. 

“While the ICPT announcement for July to December 2018 is a relief to investors, we see near-term risks as the post of the Minister of Energy, Green Technology and Water (KeTTHA) is still vacant. There could be changes in regulations and policies once the new minister is sworn in,” it said.
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