KUALA LUMPUR – Research houses viewed the Imbalance Cost Pass Through (ICPT) rebate announced by Tenaga Nasional Bhd (TNB) as neutral to its earnings, while the extension of the second regulatory period (RP2) for financial year 2021 (FY21) would allow the company to better determine the starting base of demand and capital expenditure for RP3.
MIDF Amanah Investment Bank Bhd in a research note said the extension would also allow TNB and the Energy Commission (EC) to better forecast fuel prices to minimise huge fluctuations in the ICPT.
“Broadly, the extension of RP2 into FY21 is positive for TNB as it underpins near-term regulated earnings visibility, which is estimated to account for 80% of TNB’s overall group earnings,” it said.
“The ICPT, which essentially reflects fuel and generation cost variations against RP2 parameters, has turned into a rebate position of 2 sen per kilowatt hour (/kWh) for the first half 2021(H1 2021) period (from a neutral position of 0 sen/kWh in H2 2020), following a drop in fuel prices during H2 2020. ICPT is determined on a six-month retrospective basis,” the investment bank said.
On the allowance for doubtful debt (ADD), TNB has been in talks with the EC to renegotiate the levels of ADD allowable and for a clawback of the exceptionally high amount this year, perhaps via periodic regulatory adjustments.
“Though there is no specific mention of this so far, any development on this front should be a positive earnings catalyst for TNB,” it added.
MIDF maintained a “buy” call on TNB’s shares with an unchanged target price of RM13.10.
Meanwhile, Public Investment Bank Bhd in a separate note said that the rebate will be funded by the Electricity Industry Fund (KWIE) and the ICPT mechanism will continue to shield TNB from the fluctuations in fuel and generation costs, hence resulting in neutral impacts on TNB’s earnings.
Commenting on concession and shareholders agreement for cooling the co-generation plant, the investment bank said a joint-venture between TNB’s unit, TNB Engineering Corporation Sdn Bhd, and Airport Ventures Sdn Bhd would generate additional recurring income for TNB in the next 20 years.
“The total project cost was estimated to be approximately RM183 million and will be funded through a combination of external borrowings and shareholders’ equity. The plant will supply electricity and cooling energy to Kuala Lumpur International Airport and other designated facilities for a period of 20 years, effective from July 1, 2021,” it added.
Nevertheless, Public Investment Bank made no changes to its earnings forecast as the overall impact to the group’s earnings would be minimal.
It has upgraded its call on TNB to “outperform” from “neutral”, with a target price of RM12.42. – Bernama, December 24, 2020
