Higher fuel cost may dim TNB’s FY18 results: MIDF Research

PETALING JAYA: Tenaga Nasional Bhd (TNB) may see its earnings for the financial year ending Dec 31 (FY18) affected by higher fuel cost, said MIDF Research.

“The higher fuel cost, although technically is temporary until TNB gets adjustments in 1H19 ICPT (Imbalance Cost Pass Through), will impact earnings for FY18 given the delay in recovery,” it said in its report.

TNB reported core earnings of RM1.2 billion for the third quarter ended Sept 30, excluding RM510 million one-offs, bringing its core earnings for the nine-months period to RM5 billion.

During the quarter, the coal cost recognised by TNB rose significantly by 13% quarter-onquarter. The impact of higher coal price was further compounded by weak ringgit trends while piped gas price was higher in line with the gradual subsidy rollback.

“Additionally, fuel cost was impacted by higher gas in the generation mix which increased to 42% from 39% last quarter. This is due to outages at Kapar Energy and Tanjung Bin coal plants and is temporary. Coal mix is expected to normalise in 4Q18,” said MIDF Research.

It expects fuel cost in 4Q18 to ease slightly given a recovery in coal mix and gradually easing coal price in the spot markets.

The research house noted that TNB’s capital expenditure looks to have peaked with minimal new generation projects in the pipeline and most of the existing projects having progressed well as of 2Q18.

“Jimah East 95% completed, Sepang Solar completed and Southern Power Generation 59% completed. This suggests room for further growth in dividend payout,” it said.

It reaffirmed its “buy” call at unchanged target price of RM16.80 with key catalysts being decent dividend yields of 4.3% while valuations are cheap, peaking capex suggesting room for dividend upside and possible monetisation of backbone fibre asset via partners.

Meanwhile, CGS-CIMB has cut its FY18-20F EPS forecasts by 0.17% to factor in higher-than- expected associate losses and a higher effective tax rate.

“We expect the tax rate to continue to trend higher in FY18F due to a reduction in reinvestment allowance. Our target price is revised down to RM14.60 after the earnings adjustment, still based on a 10% discount to sector average FY19F P/E of 14 times to factor in risks from sector reforms,” it said.

CGS-CIMB maintained its “hold” rating on TNB despite the stock being one of the cheapest big-cap stocks in the market.