Tenaga’s first half 2022 EBITDA, operating profit, and core PBT (excluding forex translation loss of RM195m) were in-line making up 52%/52%/54% of the research house estimate.
However, 1HFY22 core net profit of RM1.96 billion fell short at 44% and 42% of our consensus estimates respectively, mainly due to higher-than-expected effective tax rates. Bottomline dragged by the higher tax. The significant +46%yoy rise in
1HFY22 revenue reflects mostly ICPT under-recovery recognition. 1HFY22 EBITDA was up +8.9%yoy to RM10,577m mainly due to lower allowance for doubtful debt and higher electricity sales (capped at volume growth of +1.7%yoy to 115,835GWh for FY22F under the IBR). However, core earnings were down -24%yoy to RM1,960m due to higher effective tax rates are driven by the prosperity tax and higher deferred tax.
A first interim dividend of 20sen/share was declared in 2QFY22, around -9% lower than last year’s first interim dividend and implies a yield of 2.2%. Tenaga usually announces the 2nd interim in 4Q. Receivables ballooned further. Receivables ballooned further to RM19b in 2QFY22 (1QFY22: RM14b); some 63% (i.e., RM12.1b) of this comprise of ICPT. 2QFY22 cost under-recovery rose +80%qoq to RM6.3b (1QFY22: RM3.5b) given higher fuel prices and a higher coal generation mix. Incremental debt to fund the additional working capital will be guaranteed by the Government (for up to RM6b), but expect a deterioration in underlying cash flow nonetheless.
1HFY22 operating cash flow has shrunk -79% yoy to RM1,887m mainly due to the ICPT under-recovery. Tenaga forecasts capex at RM11.8b this year, up 39% from FY21’s RM8.5b. Given rising borrowings, net gearing, estimates, rose further to 81% in 2QFY22 (1QFY22: 76.1%). Given the 1HFY22 underperformance, MIDF trims its FY22F earnings by -3% to RM4,307m to factor in a higher effective tax rate assumption from a higher-than-expected prosperity tax impact. It is now expected FY22F core earnings to contract -4.7%yoy. As the tax impact to normalise next year, MIDF keeps FY23F net profit unchanged
With this, MIDF keeps a NEUTRAL call at an unchanged DCF-derived TP of RM8.45. Cash flow constraints from deep cost under-recovery might depress dividend payout to the lower end of Tenaga’s 30%-60% payout policy, MIDF sees this to reduce the attractiveness of the stock in the near term amid rising interest rates. The research house likes Tenaga’s long-term decarbonisation initiatives but sees near-to-mid-term ‘transition pain’ to endure in earnings impact from early coal plant retirement and stake dilution from CCUS incorporation and Cost impact from potential carbon pricing introduction.
Foreign institutions have net bought +RM112m of Tenaga year-to-date, while local institutions have net sold -RM694m. The
bulk of the fund inflow from local investors came from retailers at +RM409m. Foreign shareholding seems to be stabilising
at 12.0%-12.3% range in the past year.
