TNB’s top-line growth intact for 4Q23

PETALING JAYA: Sustained growth in power demand is expected to support Tenaga Nasional Bhd’s (TNB) top-line growth in the fourth quarter of 2023 (4Q23).

Nevertheless, higher operating expenditure will likely be a drag on the utilities giant’s earnings in the final three months of the year.

According to Hong Leong Investment Bank (HLIB) Research, TNB would see continued growth in power demand in 4Q23, after registering a 2.5% year-on-year (y-o-y) increase in demand in Peninsular Malaysia and Sabah for the first nine months of 2023 (9M23), in tandem with country’s continued economic recovery.

However, the brokerage said: “TNB’s earnings may continue to deteriorate in 4Q23 given the usual timing of accelerated operating expenditure (opex) during the quarter.”

It noted TNB’s core profit after tax and minority interest (Patami) at RM773.3mil, down 49.5% y-o-y, for 3Q23 and RM2.6bil, down 33.9% y-o-y, for 9M23 were below consensus and the brokerage’s expectation.

The decline in Patami was affected by the negative fuel margin for domestic power generation and higher non-fuel opex. HLIB Research maintained a “buy” call on TNB, with a lower target price of RM11, as compared with RM11.75 previously.

“TNB is viewed as a strong beneficiary of the National Energy Transition Roadmap (NETR).

“TNB will accelerate investments into transmission and grid with a total RM90bil (RM35bil related to energy transitioning) planned for 2025 to 2030 versus RM45bil (RM6bil for energy transitioning) for 2018 to 2024,” it said.

“TNB will also invest into renewable energy (RE) projects (currently achieved 4.1-gigawatt or GW capacity, on track to its targeted 8.3GW capacity by 2025), early retirement of coal plants,.

“TNB will also explore new energy sources (such as ammonia and hydrogen), which will improve the group’s environmental, social and governance profile,” it added.

RHB Research said TNB’s 9M23 core profit missed expectations, being dragged by negative fuel margins and weaker joint venture and associate contributions.Nevertheless, the brokerage continued to like TNB for being a key NETR beneficiary, largely from the potential earnings upside from higher transmission and distribution of assets and a potential strong ramp-up in the domestic RE presence.

RHB Research maintained a “buy” call on TNB, with a lower target price of RM11.80 from RM12 previously.

Meanwhile, TA Research reiterated its “buy” recommendation on TNB, with an unchanged target price of RM11.

“Early this month, TNB received RM2.35bil of imbalance cost pass-through (ICPT) cost recovery for July to September 2023 from the government.

“The continuous recovery of ICPT has helped to reduce the group’s receivables from RM22.8bil as of 2022 to RM13.4bil as of 3Q23, hence improving its operating cash flow,” TA Research said.

“Following the stabilisation of coal prices, we expect TNB Power Generation Sdn Bhd’s (Genco) profitability to improve as the negative fuel margin continues to ease in the coming quarter.

“Nonetheless, Genco will likely return to the black only in 2024, provided the coal price remains stable,” it added.

TNB’s net profit declined 3.7% to RM856.2mil, or 14.85 sen per share, in 3Q23 against RM888.9mil, or 15.50 sen per share, in 3Q22.

Revenue rose 3.9% to RM13.5bil in 3Q23 from RM12.9bil in 3Q22 on higher sales of electricity.

For 9M23, TNB’s net profit fell to RM2.19bil from RM2.65bil a year ago while revenue rose to RM39.4bil against RM37.9bil last year.

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