TNB view of inflated RP1 earnings consistent with expectations
KUALA LUMPUR: Tenaga Nasional Bhd’s (TNB) view of regulatory period from 2014 to 2017 (RP1) earnings being inflated is consistent with the research arm of Maybank Investment Bank Bhd’s (Maybank IB Research) expectation of a slight earnings step-down in the second regulatory period from 2018 to 2020 (RP2).
During TNB’s call with Maybank IB Research, management confirmed that RP1 earnings (and thus returns) had indeed been inflated by the extra one sen per kilowatt hour (kWh) of tariff, or circa RM1 billion of revenue per annum, brought about by an improved customer mix.
“This is consistent with our expectation of a slight earnings step-down in RP2,” the research arm said.
The research arm expected consensus to lower earnings forecasts.
On a separate note, Maybank IB Research highlighted that management also clarified the source of funds for the RM929 million of tariff subsidy in the first half of 2018 (1H18).
Contrary to the research arm’s earlier understanding of the subsidy being directly funded by TNB’s RP1 capital expenditure (capex) savings whereby the group quoted RM2.5 billion, management alluded to the source of funding being the ‘extra’ RP1 revenue, coming from capex difference.
“We estimate the amount at circa RM1 billion for RP1,” it said. “Management added that TNB has fully provided for the amount (captured in payables).”
Maybank IB Research’s earnings forecasts were thus left unchanged, and already reflect a slight step-down for RP2.
All in, Maybank IB Research maintained ‘hold’ on TNB.
“In our view, the market will need some time to digest both the earnings step-down and the subsidy funding.”
Longer-term, the research arm’s thesis of TNB’s valuation multiple possibly expanding, as doubts over the pass-through mechanism eventually dissipate, remains intact.