TNB’s 1Q earnings hit by forex losses

The group will still honour its dividend policy of 30%-60% payout ratio of the reported consolidated net profit


TENAGA Nasional Bhd (TNB) warned of a challenging period ahead as it posted a 55% year-on-year (YoY) fall in earnings to RM717.9 million for the first quarter ended March 31, 2020 (1QFY20).

Earnings for the 1Q fell due to the power utility suffering a RM402.8 million foreign-exchange (forex) loss in the period as the ringgit weakened against the US dollar and yen as opposed to making a gain of RM207.5 million for the same period last year.

The 1Q revenue dropped 12% YoY to RM11.65 billion owing to a imbalance cost pass-through rebate of RM307.5 million versus a surcharge of RM1.37 billion it booked in the corresponding period.

TNB’s 1Q operating profit surged 64.4% YoY to RM2.22 billion helped by lower operating expenses of RM1.75 billion due to lower generation cost (lower fuel prices) during the period.

TNB president and CEO Amir Hamzah Azizan (picture) said the group is on track with its strategic transformation plan — Reimagining TNB.

Amir Hamzah said the group would continue its internal restructuring exercise to carve out its generation and retail businesses into fully-owned subsidiaries.

“TNB would honour its dividend policy of 30%-60% payout ratio of the reported consolidated net profit. We also led local corporations in extending contributions at scale to provide immediate relief, as well as support initiatives for Malaysia’s long-term economic recovery,” he said in a statement.

TNB has a critical role in supporting the government’s efforts to revive the economy and assist those whose livelihoods are affected, he added.

“Even though we are facing a hit to our revenue collection, we can remain resilient due to a robust balance sheet,” he added.

Given the ongoing Covid-19 pandemic and the uncertainties in the economic environment, TNB foresees prolonged challenges on the group’s prospect for the financial year ending Dec 31, 2020.

Electricity sales in the first three months of this year was stable at 27,938.2GWh or RM11.78 billion compared to 28,471.1GWh or RM12.03 billion in the 1Q19.

TNB said the seasonal dry spell in March initially pushed Peninsular Malaysia’s power consumption to an all-time high of 18,808MW on March 10. The uptrend was disrupted by the imposition of the Movement Control Order (MCO) on March 18.

Overall electricity consumption in Peninsular Malaysia had fallen as businesses shut their operations in adherence to the government’s stay-at-home directive during the MCO.

TNB added that the overall demand contracted by 1.9% in 1Q, before the full impact of the Covid-19 and MCO period.

Energy demand for May fell by 28% YoY, the company noted and it expects electricity consumption to drop between 7% and 15% this year, mainly due to slowdown of activities in the commercial sector.

“Nevertheless, earnings of TNB’s regulated revenue cap entities are guaranteed at demand growth of between 1.8% and 2% as stipulated by the Incentive-Based Regulation guidelines in the Second Regulatory Period (2018 to 2020),” it said.

Meanwhile, TNB said it had acquired the remaining 20% stake in Tenaga Wind Ventures UK Ltd in March this year.

The group intends to leverage its UK investments and assets as a platform to grow its renewable energy (RE) portfolio, given the growth potential as the world shifts towards sustainable energy sources.

The Covid-19 pandemic is affecting the group’s initiatives to reduce its current exposure, including the restructuring and turnaround exercise and sale of investment, particularly of its 30% interest in GAMA Energi AS (Turkey) and GMR Energy Ltd (India).

“The UK assets are insulated by the long-term subsidy scheme. Going forward, we will leverage our existing UK assets and market experience to build up a sizeable RE portfolio by 2021.

Meanwhile, TNB extended another RM17.5 million to state governments to secure essential medical supplies and protective equipment, and to address the most pressing needs in the early stages of the MCO.

TNB further allocated RM150 million to fund the tiered electricity discounts of between 2% and 50% from April to September 2020, announced as per the government’s Prihatin stimulus package.

TNB also offered a six-month instalment plan to all its 7.5 million customers, surcharge waiver on late payment and an extension of supply disconnection suspension.

TNB shares closed 0.5% or six sen higher at RM11.96 yesterday, giving it a market capitalisation of RM68.23 billion.