TNB loses RM3.6b in market cap after IRB serves hefty tax bill

Shares in Malaysia’s national utility company noted their steepest fall last Friday, pushing the stock 4.1% lower


TENAGA Nasional Bhd (TNB) has lost RM3.64 billion in market capitalisation since the company announced it was slapped with a tax bill of close to RM4 billion by the Inland Revenue Board of Malaysia (IRB).

Shares in Malaysia’s national utility company noted their steepest decline in more than seven months last Friday, pushing the stock 4.1% or 56 sen lower to close at RM13.16. A total of 11.15 million units exchanged hands.

The group extended its losses yesterday, falling a further 0.6% or eight sen to end the day at RM13.08, resulting in a total of RM3.64 billion erased from its market value in just two trading days.

Last Thursday, TNB announced that it received notices of additional assessment from the IRB for the assessment years 2015 to 2017.

The company is said to owe RM1.43 billion for 2015, RM1.24 billion for 2016 and RM1.3 billion for 2017, bringing the total owed to the tax authority to RM3.98 billion.

TNB said it has “good basis” to contend that there is no legal and factual basis for the IRB to issue the notices in question based on legal advice from its tax solicitors.

“Accordingly, TNB will be appealing against the said notices,” the company said in an exchange filing last week.

Nonetheless, the news prompted both Public Investment Bank Bhd and UOB Kay Hian (M) Sdn Bhd to downgrade the stock last Friday. Public Investment Bank downgraded the stock to ‘Sell’ at a target price (TP) of RM14, while UOB Kay Hian lowered its call on TNB to ‘Hold’ with a TP of RM15.

This is not the first time that Malaysia’s leading utility was served additional assessment notices by the IRB.

On Nov 23, 2015, the company received additional assessments from the IRB for 2013 and 2014 for a sum of RM985.57 million and RM1.08 billion respectively.

TNB said the IRB had approved, in principal, the company’s reinvestment allowance claim for the assessment years in question.

The IRB, however, subsequently reversed the approval on the basis that the company is not in the business of manufacturing which it had previously allowed exemptions for.

A year later in December, TNB and the IRB agreed that they would not commence any proceedings against the assessments totalling RM2.07 billion. This is until the matter is determined by the special commissioners of income tax and the High Court on a subsequent appeal.

The recent developments come amid impending reforms to Malaysia’ electrical supply market, namely the opening up of the electricity retail market to new players.

This, while aimed at bringing down costs for consumers and creating a more competitive and sustainable market, poses some earnings uncertainty for TNB which had previously maintained a monopoly on the segment.

TNB is in the middle of transferring assets, business undertakings and liabilities of its domestic power generation and electricity retail divisions to two newly incorporated but wholly owned companies respectively.

Following the restructuring exercise, the domestic power generation and electricity retail divisions will operate as standalone business entities under the purview of a separate board and management team to create better operating efficiency.

TNB led the decline on the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI), which fell by 22.03 points or 1.4% last Friday to close at 1,561.74.

The slump was the biggest move recorded by the FBM KLCI in over a year, brought on by foreign funds repositioning themselves in alignment with the MSCI rebalancing.

Larger concerns, however, are centred on how Beijing will retaliate after US President Donald Trump signed a pro-Hong Kong rights bill into law last week. Investors are concerned that the bill could derail ongoing trade talks between the world’s leading economies.

Year-to-date, the FBM KLCI is down 7.1% — heading for its worst year in over 10 years since the 2008 financial crisis.