TNB to post better results in 4Q

by FARA AISYAH / graphic by MZUKRI MOHAMAD

TENAGA Nasional Bhd (TNB) is expected to post a better financial result in the fourth quarter ending Dec 31, 2020 (4Q20), in the absence of further plant outages, Bantuan Prihatin Nasional (BPN) electricity discounts and retail losses.

MIDF Amanah Investment Bank Bhd (MIDF Research) analyst Hafriz Hezry said the stronger result could also be attributed to a lower Malaysian Financial Reporting Standard impact of around RM155 million against RM299 million in 3Q20 and a catch up in capital allowance (CA) recognition of RM240 million.

“TNB’s 3Q20 core earnings recovered sequentially, though not as strong as it could have, given further losses at the retail division, impairment for GMR Energy Ltd and a shortfall in CA recognition.

“The group reported a core net profit of RM903 million, which brought nine months of 2020 (9M20) core earnings to RM2.6 billion, accounting for 64% of our estimate or 59% of the consensus estimate,” Hafriz said in a report last week.

He said demand has shown a sharp recovery as demand sales in 3Q20 grew 12% quarter-on-quarter to 28,748 GWh and is only slightly short of 3Q19 demand sales levels.

MIDF Research has maintained a ‘Buy’ call on TNB at an unchanged discounted cashflow-based target price of RM13.10.

Hafriz said TNB’s share price had retraced significantly by some 15% in the past 12 months and now trades at just 13 times in the financial year 2021 (FY21) forecast earnings.

“Dividend yields of 4% in FY21, assuming a conservative 50% payout, are reasonably attractive in the current low-interest-rate environment, underpinned by easing capex for generation in the near- to mid-term which suggests base dividends of at least at the higher end of the group’s 30%-60% payout policy,” he said.

Other catalysts include the renewable energy expansion drive internationally, positive outcome from Large Scale Solar 4 bidding, a recovery in FY21 earnings from the absence of plant outages, BPN discounts and inflated allowance for doubtful debt provisions experienced in FY20.

For 3Q20, TNB’s earnings declined by 15.8% year-on-year (YoY) to RM1.01 billion or 17.73 sen per share from RM1.2 billion or 21.15 sen per share last year, due to the drop in revenue and a decline in finance income from the lower interest rates.

Its quarterly revenue fell 12.1% YoY to RM11.11 billion from RM12.64 billion in 3Q19, mainly attributed to the over-recovery position of the imbalance cost pass-through of RM1.48 billion compared to an under-recovery position of RM2 billion posted in the last corresponding period.

For the cumulative 9M20, the power utility’s net profit fell 38.66% YoY to RM2.38 billion, while revenue decreased 13.18% YoY to RM33.65 billion.