Review

• Tenaga Nasional Bhd’s (TENAGA) 3QFY23 results came in within ours but below consensus expectations. 9MFY23 core net profit of RM2.6bn (-22.7% YoY) accounted for 74% of ours and 64% of consensus full-year forecasts.

• QoQ: 3QFY23 revenue grew 1.1% QoQ, driven by a 0.9% increase in electricity demand. PBT surged 94.9% QoQ on the back of improvement in fuel margins as coal price stabilised, a net foreign exchange gain of RM4.6mn compared with a loss of RM391.7mn in the preceding quarter as Ringgit strengthened against the Japanese Yen and British Pound, as well as writeback of doubtful debt allowance following the improvement in collection. Notably, Genco registered a widened LAT of RM134.1mn compared with LAT of RM116.7mn in the preceding quarter, which we believe could be due to higher operating expenses, particularly from repair and maintenance activities.

• YoY: 3QFY23 revenue advanced 3.9% YoY, supported by 3.6% growth in electricity demand. PBT plunged 31.2% YoY due to negative fuel margin impacting Genco despite finance income more than doubling and net foreign exchange gain of RM4.6mn (3QFY22: loss of RM400.7mn).

• YTD: 9MFY23 revenue increased 3.9% YoY on the back of a 2.5% increase in electricity demand. PBT for the period dipped 40.4% YoY due to higher finance cost (+5.5% YoY) and a negative fuel margin of RM767.9mn compared with a positive fuel margin of RM916.7mn in 9MFY22.

Impact

• No change to our earnings forecasts.

Outlook

• Early this month, TENAGA received RM2.35bn of ICPT cost recovery for July to September 2023 from the government. The continuous recovery of ICPT has helped to reduce the group’s receivables from RM22.8bn as of FY22 to RM13.4bn as of 3QFY23, hence improving its operating cash flow.

• Following the stabilisation of coal prices, we expect Genco’s profitability to improve as the negative fuel margin continues to ease in the coming quarter. Nonetheless, Genco will likely turn into the black only in FY24, provided the coal price remains stable.

• TENAGA is the prime beneficiary of the National Energy Transition Roadmap (NETR), as the group will benefit from incremental revenue via wheeling charges of cross-border electricity exports. The NETR still lacks the finishing touch of finalising the mechanism of the exchange hub to enable the export of renewable energy.

Valuation

• Reiterate Buy with an unchanged TP of RM11.00/share based on DCF valuation (k: 7.2%, g: 1.4%).

Source: TA Research - 27 Nov 2023