TNB’s earnings unaffected by power demand drop

TNB’s profit will also be unaffected by its pledge to contribute RM150m to the govt’s tiered electricity rebate initiative


TENAGA Nasional Bhd’s (TNB) earnings would not be affected by the overall drop in power demand due to the Movement Control Order (MCO) as the bulk of the power utility’s returns come from its regulated transmission and distribution segments.

“The expected drop in demand is unlikely to have any material impact on TNB, given its return is mainly tied to the regulated asset base (RAB) structure,” Hong Leong Investment Bank Bhd (HLIB) analyst Daniel Wong told The Malaysian Reserve (TMR).

TNB president and CEO Datuk Seri Amir Hamzah Azizan said on Tuesday that the group foresees electricity consumption falling between 7% and 15% as businesses and households continue to observe movement restrictions, thus affecting average energy demand.

During the MCO, despite a 30%- 50% drop in electricity usage in the commercial sector as many people were working from home, there was also a 20%-30% spike in electricity usage in the domestic sector, he added.

“Since the government started imposing the Conditional MCO, we are seeing more usage from the industrial sector. So, if the recovery is stronger, then the (overall) drop will be lesser,” he told a press conference, without responding to how the situation would affect the company’s earnings in 2020.

In a note last month, Wong said TNB’s earnings would be largely unaffected under the RAB structure based on revenue cap for its transmission and distribution business, and purchasing power agreement and service level agreement based on capacity payments for its power generation segment.

“TNB will be compensated in the upcoming imbalance cost pass-through review to address the shortfall of earnings due to lower than assumed power demand of +2% year-on-year,” Wong wrote citing TNB management.

“There will be minimal impact to profit and loss accrual accounting, but (we expect) delay in terms of cashflow into the second half of the year.”

HLIB maintained its ‘Buy’ call on the group with an unchanged target price (TP) of RM13.50.

MIDF Amanah Investment Bank Bhd (MIDF Research) analyst Hafriz Hezry also kept a ‘Buy’ call on TNB with an unchanged TP of RM13.80.

As the bulk of TNB’s regulated earnings are on a revenue cap basis, the group is technically compensated for any shortfall in demand relative to Regulatory Period 2 (RP2) (2018-2020) projected demand growth of 1.8% to 2% per annum.

“(This is) with the exception of the retail segment, which accounts for less than 1% of regulated earnings.

“Vice versa, any excess demand relative to the RP2 projections are returned to consumers,” Hafriz told TMR.

TNB is also not likely to be affected profit-wise by its pledge to contribute RM150 million to the government’s tiered electricity rebate initiative, Wong added.

He said the RM150 million is in addition to the group’s corporate social responsibility commitment of RM10 million to support Covid-19 relief efforts.

“Management intends to claim tax for the RM160 million commitment, indicating minimal impact of RM120 million to net profit. The accelerated TNB investment of RM2 billion on top of the existing RM11 billion commitment in 2020 will be covered under the RAB structure.

“TNB will not be materially impacted by the announced stimulus,” he wrote.

Under the electricity rebate initiative, rebates will be given to different categories of consumers based on electricity consumption, to help Malaysians amid the economic slowdown exacerbated by the MCO.

The reduced bills will be jointly subsidised by TNB, the government and funds from Kumpulan Wang Industri Elektrik.

Among analysts surveyed by Bloomberg, 16 have ‘Buy’ recommendations on TNB, while six are calling to ‘Hold’ and one advises to ‘Sell’.

The stock closed two sen lower at RM11.98 yesterday, valuing the company at RM68 billion.


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