• The government has announced electricity surcharges for 1 July to 31 December 2024. Under the ICPT (Imbalance Cost Pass Through) framework, changes in Tenaga Nasional’s (TNB) coal and energy costs are reflected in the electricity surcharge or rebate every 6 months.

• There are no revisions for domestic consumers. However, for commercial and industrial users of electricity, the surcharge is now lower at 16 sen/kWh in 2H2024 vs. 17 sen/kWh in 1H2024. The electricity subsidies borne by the government are RM2.2bil for 2H2024 compared to RM1.9bil in 1H2024.

• There is no impact on TNB as the group recognises changes in energy costs every 3 months in its P&L Statement. There is a lagged cash flow impact, however, as the pass-through of energy costs takes place only every 6 months.

• Since reaching a low of US$116/tonne on 29 January 2024, coal price (Australian prices) has risen to US$134/tonne. Gas prices (Henry Hub) have increased to US$2.59/mmbtu from a low of US$1.58/mmbtu on 26 March 2024.

• Under RP3 (Regulatory Period 3), the reference prices are US$79/tonne for coal and RM30/mmbtu (Petronas prices) for Tier 1 gas. The parameters for RP4 will be announced in 1Q2025.

• We maintain BUY on TNB with a DCF-based fair value of RM14.55/share. TNB is currently trading at a FY25F PE of 20x vs. its 2-year average of 16x. We believe that TNB deserves to trade at a premium as it is transitioning away from coal. Also, TNB is a beneficiary of the National Energy Transition Roadmap. We ascribe a neutral 3-star ESG rating to TNB.

Source: AmInvest Research - 1 Jul 2024