TENAGA Nasional Bhd (TNB) shareholders can expect higher dividend payouts by the national utility company for the financial year ended Dec 31, 2022 (FY22) to FY24.

CGS-CIMB Research in a note today said, the continuation of the imbalance cost pass-through (ICPT) mechanism and the government guarantee of RM6 billion should ease concerns over TNB’s high receivables going forward.

“During our recent discussions with TNB, we gathered that the government guarantee of RM6 billion to support TNB’s working capital, which has received approval from the Ministry of Finance, is pending finalisation of documents.

“TNB said it will continue to honour its dividend policy of 30%-60% payout ratio, based on adjusted profit after tax and minority interest.

CGS-CIMB was made to understand that TNB aims to distribute dividends at the higher end of the dividend policy band.

“We expect TNB’s dividend payout to be at the higher end of its dividend policy, translating into decent yields of c.5% for FY22-FY24F,” it said.

CGS-CIMB views the government’s decision to continue the ICPT mechanism for the period of Jan 1 to June 30, 2023 as positive as concerns about TNB’s higher receivables due to increased fuel prices should ease.

The government maintained the ICPT rate at ICPT rebate of two sen/kWh for domestic users, and ICPT surcharge of 3.7 sen/kWh for non-domestic customers under tariff B, D, H, H1 and H2. Meanwhile, non-domestic users not under the abovementioned tariffs will face a 20 sen/kWh ICPT surcharge; this makes up about 10% of TNB’s electricity customers or 46% of total electricity sales volume.

Meanwhile, CGS-CIMB said that moving forward, ICPT may be lower, as the key customer sectors affected by the 20 sen surcharge are retail, hospital, hotel, steel factory, oil and gas, electronics, glass production and mining.

It noted that the higher ICPT surcharge for certain non-domestic users is not likely to increase TNB’s allowance for doubtful debt, as it only affects a handful of its customers, and the big corporations/manufacturers are usually good paymasters. 

The ICPT amount is about RM16.2 billion for the implementation period of Jan 1 to June 30, 2023, versus RM7 billion for the implementation period of July to December 2022. 

“The government is subsidising about RM10.8 billion of the ICPT cost, without which all electricity customers could pay a surcharge of 27 sen/kWh instead. We gather that ICPT for the next implementation period will likely come in lower than RM16.2 billion, given that fuel prices have stabilised at the moment. 

CGS-CIMB maintained its “add” call, with an unchanged target price of RM13.60, based on 15 times FY24 price-earnings (its five-year historical P/E). — TMR / pic Hussein Shaharuddin