With regards to TNB ICPT concerns, Maybank IB is of the view that there are dissipating ICPT concerns in the next 12-24 months given falling coal prices, a growing track record of timely payments by the government, and possibly reduced government resistance to future tariff surcharges.
TNB’s risk profile is thus improved, in the view, but priced to some extent given the share price run-up since 3Q22 results release.
ICPT concerns about soaring coal prices have plagued TNB in recent years. TNB has emerged from the worst of the coal price escalation relatively unscathed, having successfully addressed the associated issues (the integrity of pass-through, higher working capital cost, and rising receivables). The active Newcastle contract price has declined by c.40% YTD and is now less than half of the peak, largely due to a relatively benign winter season. We thus expect TNB’s under-recoveries to trend down throughout 2023.
TNB’s rising receivables are largely due to the increase in its recoveries. Concerns over the timeliness of the government’s payment (for its share of under-recoveries) have thus far been unfounded, with the government paying its dues on at least a monthly basis (similar/better than a tariff surcharge). For the MYR10.8b pledged by the government for 1H23, TNB has to date collected MYR4.0b, the dues for Jan-Feb 2022.
The government’s rhetoric on targeted subsidies and raising of surcharges for high voltage industrial customers potentially signal reduced resistance to future tariff surcharges. Earnings forecasts are unchanged with TP raised.