TNB's demand risk remains manageable, says Maybank IB

KUALA LUMPUR: Maybank Investment Bank Research remains bullish on Tenaga Nasional Bhd (TNB) as the demand risk of the current full lockdown is not as severe compared to the first movement control order last year.

According to the research house, electricity generation in Peninsular Malaysia has contracted about 8.5% since the latest round of the lockdown was imposed on June 1, 2021.

In comparison, electricity generation had declined about 24% during the last year's full lockdown between March and May 2020.

"Annualising the run-rate and assuming demand trended in accordance to generation, we estimate every month of FMCO would lower FY21 demand by c.0.7%, all else equal.

"The FMCO has so far been in place for a month, thus Peninsular Malaysia demand is still on course to grow in 2021," said Maybank IB.

It added that TNB is largely sheltered from demand fluctuations with only the customer services segment, comprising about RM1.7bil in annual revenue, subjected to demand risk.

The remaining annual regulated revenue of about RM13.8bil is fixed with any shortfall claimable from the industry fund.

It said each month of the lockdown implies a relatively manageable shortfall of about RM97mil.

The previous lockdown issues such as higher bad debts and Sabah Electricity losses do not appear to be as severe this round, it added.

"Our earnings forecasts and MYR12.00 TP (DCF-based assuming 7.5% WACC and 1% LT growth) are unchanged.

"We continue to expect an earnings uplift in 2021 (RP2 extension year) due to improved regulatory terms," said Maybank IB.

Moving forward, the research house does not expect TNB to be worse-off in RP3 (2022-2024).
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