TNB Q3 net profit surges to Rm1.2bil

PETALING JAYA: Analysts are expecting another strong quarter ahead as Tenaga Nasional Bhd (TNB) recorded a steep 140% jump in third-quarter (Q3) net profit to Rm1.2bil.

The utility giant saw its operating expenses for the period being pushed down by lower fuel costs, resulting in the surge in profit.

The stronger performance was also despite revenue for the three-month period ended Sept 30, 2019 declining 3.3% to Rm12.64bil due to regulatory adjustments recognised during the quarter.

For the first nine months of financial year 2019 (FY19), TNB’S net profit came in marginally higher at Rm3.87bil on higher sales of electricity, improved performance in its share of results of associates and lower impairments recorded during the period.

Revenue for the period, meanwhile, was up only 2.4% year-on-year (y-o-y) despite its sales of electricity increasing by 4.2% as compared with the previous corresponding period.

This, the group said, was also due to the regulatory adjustments recognised during the quarter under review.

HLIB Research analyst Daniel Wong told Starbiz that the Q3 results were in line with consensus expectations but slightly below the research house’s expectations.

Looking ahead, he expects the group to maintain its strong performance in Q4, given the favourable cost of fuel.

For the next financial year, Wong expects TNB to be able to sustain its numbers despite the uncertainties relating to Malaysia Electricity Supply Industry 2.0 (MESI 2.0).

In a statement, TNB noted that its share of results of associates had grown further during the first nine months of FY19, with a positive contribution of Rm93.1mil compared with a loss of Rm183.9mil previously. The share of associates, it said, reflected contribution from TNB’S investment portfolio, both locally and overseas.

“TNB has recorded a resilient y-o-y performance, driven by our focus on delivering results across both our core businesses as well as our international investment portfolio,” TNB president and CEO Datuk Seri Amir Hamzah Azizan said.

On TNB’S international investments, Amir said the group’s UK portfolio had performed better than anticipated while its investment in Turkey showed signs of recovery following the implementation of a turnaround plan.

TNB owns two renewable energy companies in the UK, which are the Vortex Solar (50% stake) and Tenaga Wind Ventures (80% stake), and a 30% equity interest in GAMA Enerji in Turkey.

Moving forward, he said TNB would leverage on its existing UK assets and market experience to grow its renewable energy portfolio by 2021 through the acquisition of both brown- and green-field projects.

An analyst with a foreign brokerage said he was surprised at the turnaround achieved by TNB’S international business, noting that this was “very encouraging” for the prospects of the group.

The analyst, who declined to be named, also said the overall results had come in broadly within estimates.

“In terms of the outlook, TNB’S grid and transmission business continues to be a national monopoly. So, we do not see recent developments being detrimental to the group in the near term,” he said, in reference to changes in the sector brought about by MESI 2.0.

As for the retail business, he noted that it only accounted for a very small part of the group’s earnings.

“Even if this business is impacted, the impact would be very minimal,” he said.

However, he noted that electricity consumption in the industrial space was beginning to taper off, as a result of the weakening economy, and this could be a worrying sign for the utility player.

In the statement accompanying its Q3 results, TNB said it was on track with the legal processes of asset and liability transfer for its two new subsidiaries and expects to complete the process by July next year.

In accordance with a corporate restructuring exercise announced in July, TNB had set up two subsidiaries – TNB Power Generation Sdn Bhd (TPGSB) and TNB Retail Sdn Bhd (TRSB).

TNB had earlier this month inked separate conditional share purchase agreements and conditional asset purchase agreements with TPGSB and TRSB for the transfer of its generation and retail businesses to the respective companies.