PETALING JAYA: Tenaga Nasional Bhd (TNB) is expected to hold on to its monopoly on the transmission and distribution (T&D) business, as the segment will remain part of the group’s core business following its proposed internal reorganisation, a research house says.
“TNB would likely retain its monopoly in T&D, in our view, as the segment is not separated out under the restructuring, and management has guided that there is no indication from the regulators to do so, ” CGS-CIMB Research said in a note.
The research house said the internal reorganisation would also have a negligible impact on the group’s earnings, and left its forecasts for the power company unchanged.
“We like TNB, given that the regulatory risk from sector reforms seems to be low, as it would likely maintain its monopoly on the T&D segment and is one of the cheapest big-cap counters with a decent dividend yield of about 4% for financial year 2019 (FY19) to FY21, ” it said.
TNB announced on Monday that it was proposing an internal reorganisation that would see the group transfer its domestic power generation and electricity retail businesses to two new wholly owned subsidiaries, as part of its strategic transformation plan to embrace future reforms in the industry.
In a filing with Bursa Malaysia, TNB said the transfer of its assets, liabilities and business undertakings to two new subsidiaries (GenCo and RetailCo), would improve efficiency, agility and performance of the group’s business segments as well as promote ownership, entrepreneurship and innovation within the group.
The changes in its structure is projected to improve the group’s performance and returns to its shareholders in the medium to long term.
It said each business entity would be under the purview of a separate board and management team that is accountable for the performance and financial results of the business.
CGS-CIMB Research, in the report, said the separation of the domestic generation and retail segment from TNB had not come as a surprise, as domestic generation had been an open market since the introduction of independent power producers in 1992, and in view of the government wanting to increase competition across the value chain, particularly in the retail segment.
The research house said TNB president and CEO Amir Hamzah Azizan, who hosted a conference call on the development, had noted that post-internal reorganisation, the group’s principal activities would be the national network operator (T&D businesses) and international business venture.
The T&D divisions own more than 90% of the regulated assets under the incentive-based regulation, generating more than 50% of the group’s total net profit.
In FY18, TNB’s earnings before interest and tax (EBIT) stood at RM4.9bil, and the group has an EBIT target of RM9.7bil by 2025.
“The group plans to sustain and enhance the national grid by investing in a smart grid, and strengthen its overseas ventures, especially its Turkey and India operations, ” it said.
The research house also noted that the internal restructuring showed that TNB was proactively adapting to the changes that would take place following the impending market structure reforms, which have been highlighted by the government since last year.