Analysts warned that the ruling could force TNB to make substantial provisions in upcoming financial results and may also have implications for the group’s other ongoing legal challenges.
PETALING JAYA: Shares of Tenaga Nasional Bhd
(TNB) dropped sharply yesterday, following the national utility company’s defeat in a landmark tax case at Malaysia’s highest court.
TNB dipped 58 sen to RM14.02, taking 4.8135 points off the FBM KLCI.
Analysts warned that the ruling could force TNB to make substantial provisions in upcoming financial results and may also have implications for the group’s other ongoing legal challenges.
On Wednesday, the Federal Court allowed the Inland Revenue Board’s (IRB) appeal, overturning the decision by the High Court and the Court of Appeal, which had previously ruled in favour of TNB’s judicial review application to set aside the notice of additional assessment amounting to RM1.25bil for 2018.
Consequently, TNB is liable to pay IRB a total sum of RM1.25bil.
The Federal Court ruled that TNB is not in the business of manufacturing electricity and should have been considered a utility company, where the applicable schedule is 7B (investment allowance) under the Income Tax Act 1967, instead of Schedule 7A (reinvestment allowance).
In light of the Federal Court’s decision, TNB said it would be pursuing a claim for the investment allowance under Schedule 7B.
TNB said the Federal Court’s decision could potentially have a negative impact on its financial year 2025 (FY25) earnings and net assets.
CIMB Securities said: “We are concerned that this may set a legal precedent for TNB’s other pending court cases for notice of additional assessment from IRB.
“We gather that the cumulative amount from notices of additional assessment for years 2013 to 2021 is RM5.05bil (inclusive of the RM1.25bil for 2018),” the research house said in a report yesterday.
It said in the worst-case scenario where TNB has to pay the full amount, the impact to its current target price (TP) of RM15.75 would be 87 sen per share or 5.5%.
However, the impact may be smaller if TNB is successful in claiming for investment allowance under Schedule 7B.
“In terms of impact on headline net profit, the worst-case scenario would more than wipe out our current FY25 forecast of RM3.78bil but is unlikely to significantly affect our FY25 core net profit forecast as we consider it a one-off tax charge,” the research house added.
For now, it is maintaining a “buy” rating on TNB with an unchanged TP of RM15.75, pending more clarification from the company regarding the potential financial impact from this development.
It said TNB is currently valued at a reasonable level based on its projected FY25 earnings and it offers solid dividend yields of 3.1% to 3.8% over the FY25 to FY27 period.
Other research houses, in reports yesterday, reiterated their “buy” calls on the company.
TA Research said while the RM1.25bil tax claim could lead to a one-off 27% hit to TNB’s FY25 earnings and a 2% reduction in net assets, it would not change the firm’s long-term view, which remained positive on the group’s growing regulated asset base, driven by higher grid investments to support the energy transition.
UOB Kay Hian (UOBKH) Research recommended buying on share price weakness.
The research house said the new automatic fuel adjustment framework would support TNB’s strong cash flow and could lead to higher dividend payouts in the future.
Some analysts continue to expect the group to maintain its 50% dividend payout ratio.
