• The Energy Commission has announced the tariff surcharge for 1H2024 pursuant to the Imbalance Cost Pass Through (ICPT) mechanism.

• The tariff surcharges for the various consumer segments in 1H2024 are the same as 2H2023.

• Although there is no surcharge for domestic usage from 600kWj to 1,500kWj, the rebate of RM12 to RM32 will no longer be granted. This could result in increases of RM12 to RM32 in electricity bills. Consumers, who use 600kWj of electricity or less will continue to receive rebate of 2 sen/kWj.

• For residents with high usage exceeding 1,600kWj, the tariff surcharge is unchanged at 10 sen/kWj.

• For commercial and industrial users, the tariff surcharge of 17 sen/kWj in 1H2024 is the same as 2H2023.

• There is no impact on TNB as TNB recognises the cost pass-through in its P&L every quarter. There is a lagged cash flow impact as the tariff surcharge or rebate is only revised every six months. The ICPT charges in TNB’s P&L amounted to RM8.5bil in 9MFY23 vs. RM15.9bil in 9MFY22.

• The ICPT mechanism allows increases in the costs of gas and coal to be passed on to the consumers. Under RP3, the reference rates are US$79/tonne for coal and RM26/mmbtu for gas.

• We maintain BUY on TNB with a DCF-based fair value of RM11.40/share (terminal growth rate: 2%, WACC: 7%). TNB is currently trading at a FY24F PE of 13x, which is below the 2- year average of 15x. We ascribe a 3-star ESG rating to TNB.

Source: AmInvest Research - 26 Dec 2023