TNB to gain from recovery in electricity demand


Electricity demand for Peninsular Malaysia continued to recover in the 1Q of 2022, charting a 4% increase y-o-y, led by better commercial and domestic consumption. Its ambitious renewable energy (RE) targets could fuel medium to long-term growth.

PETALING JAYA: Tenaga Nasional Bhd’s (TNB) net profit of RM893.1mil in the first quarter ended March 31, 2022 (1Q22), which was down 6.84% year-on-year (y-o-y) due to higher tax expenses, were within analysts’ expectations.

They noted that electricity demand for Peninsular Malaysia continued to recover in the 1Q of 2022, charting a 4% increase y-o-y, led by better commercial and domestic consumption.

Meanwhile, its ambitious renewable energy (RE) targets could fuel medium to long-term growth.

TNB’s management, according to Hong Leong Investment Bank (HLIB) Research, had guided financial year 2022 (FY22) to sustain with an expected power demand growth of 1.7% y-o-y, in tandem with the recovery of the economy.

The research firm added that the group’s earnings will also remain sustainable under the regulatory period three or RP3 framework despite the increasing global fuel prices.

However, HLIB noted that TNB’s receivables have further ballooned to RM14.1bil in 1Q22, from RM10.5bil in 4Q21, mainly due to the time lag effect of approved fuel cost pass -through of only RM1.7bil in the first half of FY22 compared with the RM4.5bil imbalance fuel cost pass-through recognised in the second half of FY21.

“We expect cash flow to be dragged by the ongoing mismatch from fuel cost pass-through in the near term.

“Nevertheless, we expect the government to continue honouring the RP3-ICPT (imbalance cost pass through) mechanism,” said the research firm in a note to clients.

HLIB said it adjusted earnings for FY22 by minus 2.6% and FY23 by minus 0.9%, while introducing FY24 forecast earnings at RM5.7bil.

Meanwhile, CGS-CIMB Research said the capital expenditure (capex) guidance for FY22 is RM11.8bil with the annual average regulated capex standing at RM6.9bil.

“We gather that the regulated capex spending is on track at RM1.2bil in 1Q22, representing 16% utilisation of the FY22 approved amount of RM7.4bil under the incentive-based regulation (IBR),” added the research firm.

It also noted that the group was progressing well towards achieving its RE target of 8,300 megawatt (MW) by 2025. Its RE capacity as of April 2022 stood at 3,596MW versus 3,402MW as at March 2021.

To achieve this, analysts believed that there could be more mergers and acquisitions within this space.

RHB Research also said that TNB is repowering its coal plant into a combined cycle gas turbine plant with co-firing capabilities, while progressively applying new emerging technologies to reduce carbon emissions.

“In tandem with Malaysia’s transition into low-carbon mobility, TNB has either entered into a memorandum of understanding or collaborated with prominent partners in e-mobility, which includes the coplanning and co-deploying with charge point operators to ensure optimisation of chargers.

“TNB will open an electric vehicle charging station in Bangsar by the end of 2023,” RHB Research said in its report where it keeps a “buy” on the stock with a target price of RM11.50.

It said that the stock is trading close to its seven-year low and foreign shareholdings stood at 12.1% as of March 2022 versus December 2020’s 12.9%.

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TNB , Tenaga Nasional , electricity , demand , Malaysia ,

   

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