Maintenance of current electricity tariff, MIDF downgrades TNB to ‘Neutral’
KUALA LUMPUR: MIDF Research downgraded Tenaga Nasional Bhd (TNB) ‘s recommendation to NEUTRAL from BUY and reduced its share target price (TP) from RM11.80 to RM9.55 to reflect regulatory concerns that emerged after the government decided to maintain current electricity tariffs.
In its research note today, MIDF Research said the decision to postpone the tariff review was surprising, as it was the second such postponement and TNB’s ICPT position under recovery of RM1.3 billion at 3QFY21 was a result of rising coal and gas market prices. .
“While our review yesterday showed that TNB’s cash flow will remain neutral to the decision to maintain the ICPT rebate, disruptions in the tariff-setting process raise regulatory concerns, especially amid rising global fuel prices.
“Besides, this means that the uncertainty about the determination of the controlled return of RP3 will be prolonged and remain pending in the near future,” he said in his research note here today.
Last week, TNB in a filing on Bursa Malaysia said the government continued the current parameters of Incentive -Based Regulation (IBR) for the extension of the second regulatory period and maintained the current electricity tariff schedule effective from January 1, 2022 and until further notice.
The government also decided to continue the implementation of the ICPT mechanism while maintaining the ICPT rebate at 2.00 sen/kWh which is being implemented for all customers, including domestic customers with monthly consumption of 300 kWh and below, effective the same date.
The national utility company, however, said the impact of the implementation of the ICPT, based on the Regulatory Implementation Guidelines (RIG), was neutral on TNB and would not have any impact on business operations and financial position.
Meanwhile, MIDF said the market’s perception of the latest developments has the potential to be a regulatory risk to TNB and it may limit the share’s rise in the near term, coupled with lingering ESG concerns.
“Therefore, we downgraded TNB to NEUTRAL from BUY and downgraded our TP to RM9.55 from RM11.80 previously as we now include a higher risk premium into our Discounted Cash Flow (DCF) assessment.
“Nevertheless, the upside risk to our call may arise from the more aggressive -than -expected accumulation of renewable energy (RE) assets against TNB’s 8300MW RE capacity target by 2025,” he said.