Tenaga Nasional Berhad’s (TNB) 3QFY23 reported core net profit of RM662.6m was lower by 36.4% YoY due to negative fuel margin incurred arising from the higher Moving Average Price (MAP) (actual cost purchased) against Applicable Coal Price (ACP) (billed to generators). On a sequential basis, the core net profit increased by 31.7% mainly due to narrower negative fuel margin and lower tax expense. As for 9MFY23, the Group recorded core net profit of RM2,439.7m, lower by 26. 8% YoY though meeting our full year estimates at 72% but lagging consensus at 60%. The domestic generation business remains in a net loss position of RM327.9m for 9MFY23 due to impact from an RM767.9m negative fuel margin from its coal inventory. Nevertheless, we expect TNB to finish FY23 with stronger 4Q results given stable coal price futures, which will reduce the gap between MAP and ACP. All-in, we keep our forecasts unchanged and maintain our Outperform call and TP of RM11.50.

• Electricity demand remains intact with 3.6% YoY growth for 3QFY23, in tandem with its core revenue growth of 3.9% YoY. Similar to 2QFY23, the demand was mainly driven by domestic and commercial segment at +7.1% and +6.8% YoY respectively. However, the industrial segment remains a drag as demand fell by 1.6% YoY.

• Margin recovery with lower coal price. On a sequential basis, TNB’s operating profit margin was slightly higher by +1.5ppts although with lower ICPT revenue by -30.1% QoQ. This is largely due to lower generation cost, led by lower cost of coal by RM1.1bn or 19.7%. In 3QFY23, its average coal purchase price was at RM508.9/MT (USD111.8/MT), lower by 18.3% QoQ as compared to RM623.2/MT(USD137.3/MT) in 2QFY23.

• Better 4QFY23 as coal prices stabilise. Based on coal futures (Figure 1), the price has bottomed out on 1st November at USD119/MT and stabilised throughout the month. We also calculate that volatility of the prices have reduced to 2.13% standard deviation as compared to 2.50% and 2.91% in 2QFY23 and 1QFY23 respectively. Moving forward, we believe this could reduce the gap between MAP (the actual cost in inventory) and ACP, set by Energy Commission that tracks the futures faster (Figure 2). MAP usually has a lag effect due to generators’ inventory requirement to have at least 1 month coal stock to ensure uninterrupted electricity supply.

Source: PublicInvest Research - 27 Nov 2023