TNB earnings growth outlook remains bright

PETALING JAYA: Tenaga Nasional Bhd’s (TNB) earnings prospects remain bright amid high fuel and energy costs, and the outstanding imbalance cost pass-through (ICPT) mechanism.

Hong Leong Investment Bank (HLIB) Research said despite these high fuel and energy costs, and the ICPT mechanism, it remains positive on TNB’s earnings outlook.

ICPT is a mechanism under the Incentive Based Regulation framework that allows TNB, as the power utility, to reflect changes in fuel and other generation-related costs in the electricity tariff.

The research house, which is maintaining its “buy” recommendation on the stock, said: “We believe the government remains committed toward the ICPT framework in instilling long term investors’ confidence and ensuring the long term sustainability of the power sector.

“The short-term cash flow mismatch will be addressed in the upcoming ICPT review by the year’s end, given the current stable fuel and energy prices.”

Meanwhile, HLIB Research said as the Northern Hemisphere enters the winter season, it anticipates the high fuel prices to remain until year-end.

As of November, coal prices had remained stubbornly high, above US$300 (RM1,422) per tonne since the spike in March this year, while the recent ringgit deterioration against the US dollar to more than 4.70 has further exacerbated the situation.

Similarly, the gas prices (charged by Petroliam Nasional Berhad) continued their uptrend in tandem with international gas and liquefied natural gas (LNG) prices.

Despite European gas prices weakening recently to RM115 per million British thermal units (mmbtu), it is still way above Japan’s imported LNG prices of RM88 per mmbtu and Malaysia’s ex-LNG prices of RM43 per mmbtu.

Given fuel energy prices remained relatively stable for the period of July this year until today, the research house expects the gap between the estimated and actual fuel energy prices to narrow significantly for the upcoming first half of the financial year 2023 ICPT review by the end of 2022, and TNB would be able to recover the current outstanding of about RM4.8bil.

HLIB Research is not overly concerned about TNB’s cash flow mismatch and remains positive on its long-term commitment to the environmental, social and governance growth path, while ensuring a return to shareholders.