TNB’s 3Q profit lower on higher finance cost

by MARK RAO / Pic by HUSSEIN SHAHARUDDIN

Tenaga Nasional Bhd (TNB) posted a higher revenue for the third-quarter ended May 31 (3Q17), but profits were hurt due to higher nance cost and taxation.

The country’s power company recorded a revenue of RM12.5 billion for the period under review compared to RM12.1 billion in the corresponding period a year ago. Earnings, however, fell 15.1% to RM1.96 billion for the quarter from RM2.3 billion a year ago.

Profit for the nine-month period of financial year 2017 (FY17) stood at RM5.18 billion compared to RM5.58 billion in the corresponding period last year.

TNB said the 7.3% drop in profit was mainly due to increased finance cost and taxation for the period under review.

It said the higher finance cost was mainly due to firsttime recognition of interest on Power Purchase Agreement (PPA) Saving Fund of approximately RM0.15 billion.

The PPA Saving Fund was established by the government in 2013 to accumulate savings from the renegotiation of PPAs with the first-generation independent power producers.

TNB is the temporary custodian of this fund, until the amount is reverted to the government. The company said this is in line with the newly gazetted Federal Government Electricity Supply (Electricity Industry Fund) Order 2017 in April 2017.

TNB said its profit was further impacted by higher taxation mainly due to an increase in deferred taxation expenses, resulting from higher capitalisation of assets during FY16 and FY17 recognised in 3Q17. The average coal price for the nine-month period was also higher at RM312.30 per metric tonne compared to RM234.70 per metric tonne during the corresponding year, pushing the firm’s operating expenses by 6.2%.

However, TNB said the rise in operation cost was mitigated by the 5% revenue increase, mainly from the recoverability of the higher generation costs via the effective implementation of the government-approved imbalance cost passthrough (ICPT) mechanism.

TNB president and CEO Datuk Seri Azman Mohd said, “The ICPT mechanism, a part of the wider regulatory reform called the incentive-based regulation, allows for the group’s regulated businesses to be financially neutral from any variation in generation costs and fuel prices.”

He said the new system allows TNB, which services 9.2 million customers, to be financially neutral in the industry.

TNB also reinvested RM7.54 billion in capital expenditure back into Malaysia for the first nine months of the fiscal year, which helped strengthen the group’s balance sheet with total asset base increasing to RM138.2 billion as of May 31 this year.

The deferred tax increased from RM22.1 million to RM400 million over the same period, brought on by the higher capitalisation of asset during FY16 and the ongoing FY17.

TNB expects electricity demand would grow in line with the projected gross domestic product growth of 4.8%.

However, the company said it would remain cautious on the outlook for FY17, given the prospect of volatility in the global commodity and energy prices.

TNB’s share price closed two sen higher at RM14.22 after reaching a high of RM14.44. It is valued at RM80.5 billion based on yesterday’s closing price.