PETALING JAYA: The recovery in the demand for electricity is healthy but Tenaga Nasional Bhd’s (TNB) operating cashflow may stay under pressure if fuel prices continue to stay high, according to RHB Research.
It said that pending further details, the newly announced 1,200MW quota for solar resources may provide project sustainability for solar engineering, procurement, construction and commissioning contractors – even with the absence of large-scale solar or LSS5 for now.
“We remain neutral on the sector,” the research house said in its latest report to clients.
RHB Research said that in the recently concluded reporting period, two companies booked numbers that were within expectations while three disappointed.
“YTL Power International Bhd and Samaiden Group Bhd were the outperformers.
“While we still like Samaiden’s long-term prospects, we have downgraded the stock to ‘neutral’, as its recent share price rally has priced in near-term growth prospects while high solar-panel prices hinder a further re-rating of the sector,” it said.
The research house noted that electricity demand in Sabah and Sarawak continued to recover in the second quarter (2Q22), up by 4%, led by better commercial and domestic consumption.
It said TNB recognised the imbalance cost-pass-through (ICPT) charge of RM9.8bil in the first half of 2022 (1H22), and 63% or RM12bil of its RM19.2bil trade receivables is related to ICPT.
“We were guided that the RM5.8bil fuel subsidy for 1H22 was split into monthly payments in 2H22, of which TNB is in the midst of processing the July and August payments.
“To manage the increasing working capital requirement, the government has agreed to provide a financial guarantee of up to RM6bil and the incentive-based regulation allows TNB to recover the cost of working capital through the ICPT remuneration rate.
“With fuel prices still high, TNB’s operating cashflow should stay under pressure,” it said, adding that if the government maintains the tariff rates in 1H23, a much higher fuel subsidy would be required to close the gap.
Moving forward, RHB Research said it believed Budget 2023 will continue to emphasise on energy transition, with more environmental, social and corporate governance-friendly measures being implemented.
“The wish list items should include tax incentives to boost electric vehicle adoption, charging infrastructure, solar usage for residential, new technologies (battery storage) and solar part imports.”
Meanwhile, RHB Research said TNB has revealed various plans within its key divisions during its Investor Day.
“The overall earnings before interest and tax is projected to grow by 140%, from RM8bil in financial year 2021 to RM19bil by 2050, of which 58% is from future generation and new green businesses while the remainder will come from the grid segment.
“Its regulated asset base for the grid and distribution network is projected to grow from the current RM64bil to around RM100bil by 2050. The group will require an investment of RM10bil to RM20bil per annum over the next 30 years,” it said.