TNB’s appeal intact despite tax drag


Tenaga Nasional Bhd (TNB) continues to be an attractive stock, with research houses maintaining their ‘Buy’ calls, despite a dip in the company’s third-quarter of 2017 (3Q17) performance due to a spike in its tax bill.

Last Friday, the national energy provider had 17 ‘Buy’ calls, with two ‘Hold’ and two ‘Sell’ recommendations.

Among those in the affirmative was AmInvestment Bank Bhd that maintained its endorsement on TNB, albeit with a lesser discounted cash- flow fair value of RM17.55.

The research house attributed TNB’s strong fundamentals — its healthy balance sheet and promising merger and acquisition outlook — for the call.

Meanwhile, valuation remains compelling at 10.6 times calendar year 2017 per earnings ratio with a dividend yield of 4.3% to 4.9% for 2017 until 2019.

TNB’s net profit for the fiscal 3Q ended 15% lower to RM1.96 billion compared to RM2.31 billion the previous year, tugged by an increase in deferred taxation expense, its exchange filing showed.

AmInvestment said the figure came below expectations at only 70% and 68% of their full-year forecast and full-year consensus estimates respectively.

It said the deviations comprised of a one-off deferred taxation expense amounting to RM300 million and an 80% subsidiary operating cost hike related to TNB’s repair and maintenance subsidiary.

The utility giant — whose major shareholders include state-backed funds, Khazanah Nasional Bhd (28.3%), Employees Provident Fund(15.7%)and Amanah Saham Bumiputera (6.8%) — was hit with its biggest tax bill since 2015 in 3Q17.

To date, TNB has allotted RM508.8 million in deferred taxes following its clash with the Inland Revenue Board on claims of unpaid taxes totalling to RM2.07 billion between 2013 and 2014.

Despite the additional expenses, turnover for the quarter rose 3.5% to RM12.55 billion from RM12.13 billion a year ago, on the back of an under recoverability of imbalance cost pass-through (ICPT) recognised during the current period.

TNB president and CEO Datuk Seri Azman Mohd said the ICPT mechanism, a part of the wider regulatory reform called the incentive-based regulation (IBR), would allow TNB to be financially neutral from any variations in generation costs and fuel prices.

Industry experts had earlier projected that the implementation of the IBR framework would stabilise the group’s earnings and cashflow, while the anticipated IBR revision to lower return on regulated assets next year, is expected to be compensated by new contributions from TNB’s allies and power plants.

Additionally, AmInvestment downplayed concerns over the second regulatory period parameters as TNB’s principles were firmly entrenched in its resilient earnings.

TNB shares ended last Friday at RM14.16, 0.56% lower from its opening price, despite trading as high as RM14.22 during the day. Some 9.19 million shares were exchanged, giving the company a market capitalisation of RM80.34 billion.