Maybank IB maintains ‘Hold’ call on TNB


MAYBANK Investment Bank Bhd (Maybank IB) has maintained its ‘Hold’ call and target price (TP) of RM9.60 for Tenaga Nasional Bhd (TNB) following the favourable court decision on the power utility’s tax dispute with the Inland Revenue Board (LHDN). 

On Tuesday, the High Court allowed TNB’s judicial review to set aside LHDN’s notice of RM1.81 billion of additional assessment for 2018. 

“The High Court ruled that TNB is in the business of manufacturing electricity and is thus entitled to claim reinvestment allowances on the capital expenditure (capex) incurred in 2018,” Maybank IB’s analyst Tan Chi Wei wrote in a note on TNB recently. 

The analyst opined the court decision bodes well for TNB’s remaining (similar) disputes for prior years of assessment, thus alleviating a longstanding overhang. 

“Nevertheless, extremely elevated coal prices’ main concern over the imbalance cost pass-through (ICPT) mechanism will continue to take centre stage,” noted Tan. 

To recap, in December 2020, TNB negotiated with the LHDN to lower the additional RM7.86 billion of tax assessments for 2013 to 2018 to RM5.42 billion. 

TNB had, in return, advanced RM1.76 billion to the LHDN (no profit and loss impact, recognised as tax recoverable on the balance sheet), which would be recovered if TNB received a favourable court verdict, Tan explained. 

Tenaga filed two judicial reviews for the years 2018 and 2015-2017 related to the reinvestment allowances claim. 

The hearing for the 2015-2017 judicial review has been set on March 16. 

Concurrently, the analyst said it is unclear when TNB would be able to recover its tax advance. 

“While valuations are attractive, we think the stock is unlikely to rerate significantly due to lingering concerns over the ICPT mechanism,” added Tan.