Tenaga Nasional’s 1QFY23 result came in broadly within the house and consensus estimates said MIDF, the group reported a core net profit of RM974m (normalized for RM28m forex translation gain), accounting for 21%/20% of consensus full-year estimates.
The utility giant’s topline grew +4%yoy driven by marginally higher demand (+0.5%yoy) and higher average tariff achieved (+0.8%yoy) given a higher proportion of commercial sector demand. However, PBT contracted -28%yoy due to higher generation costs, notwithstanding an RM47m writeback of ADD (allowance for doubtful debt) in the period, while finance cost rose +7%yoy given higher borrowings to fund working capital from higher fuel costs. Nonetheless, the core bottom line was up +15%yoy given a lower effective tax rate of 16% (1QFY22: 44%) on the absence of prosperity tax and higher reinvestment allowance recognised.
MIDF said in line with its thesis, receivables receded – 14%qoq to RM19.7b in 1QFY23, which the house believes was driven by higher ICPT surcharge allowed in the last December 2022 ICPT review (ICPT surcharge raised to 20sen/kwh from 3.7sen/kwh for mid-high voltage non-domestic consumers), coupled with higher ICPT subsidy from the Government of a total RM10.4b for 1HFY23. There is, however, some concern about the ICPT subsidy receivables since as at end-May, only half of the RM10.4 Government subsidy has been collected. Tenaga expects the remaining to be settled throughout June, which is a stance we share at this point. Under-recovery is expected to ease. The house said it believes fuel cost under recovery will gradually reduce in tandem with the significant easing in global coal prices. This in turn is expected to lower ICPT receivables further and in turn, lowering working capital requirement as well as finance costs going forward.
In view of this MIDF keeps the FY23F/24F earnings projections as the result were within expectations. As for the stock, the NEUTRAL call is maintained with TP unchanged at RM10.00. The recent lifting of RE export ban and plans for cross-border RE trade, however, is a potential medium-term catalyst, the house added.
