Tenaga Nasional saw its 1H23 core profit miss expectations, being dragged by negative fuel margins and weaker JV& associate contributions.
Operating cash flow continued to strengthen to MYR11.9bn in 2Q23, lowering its net gearing to 0.72x from 0.83x in 1Q23. RHB investment believes TNB is a key National Energy Transition Roadmap beneficiary, largely from the potential earnings upside from higher transmission & distribution assets and a potential strong ramp-up in the domestic RE presence.
At 38% and 39% of RHB’s and Street FY23 estimates, the company’s 1H23 core profit of MYR1.8bn fell below expectations due to negative fuel margins and weaker JV& associate contributions. Note that our numbers have imputed MFRS 16 changes.
2Q23 core earnings fell 14% to MYR828m, largely due to a weaker domestic power generation arm, higher tax expenses, and weaker JV & associate contributions. This also came despite the demand for electricity in West Malaysia increasing by 7% QoQ in 2Q23, as a result of higher consumption from the commercial and industrial segments amidst flattish domestic consumption. 1H23 core earnings contracted by 11% YoY, dragged by a weaker domestic generation arm which sank into a loss of MYR194m (1H22: MYR807m profit), no thanks to the negative fuel margin impact.
Looking ahead, electricity demand rose in tandem with GDP growth in 2Q23 (+3.3% YoY), with new peak demand of 19,716MW recorded in May. The house saw a rise in the coal generation mix to 60.1% (1Q23: 53.7%) at the expense of the gas mix, which in turn dropped to 34% (1Q23: 39.5%). TNB’s operating cash flow continued to strengthen to MYR11.9bn in 2Q23, lowering its net gearing to 0.72x from 0.83x in 1Q23. The current RE capacity is at 3.9GW. RHB believes TNB is one of the key beneficiaries of the NETR – largely from the potential earnings upside from higher T&D assets (including wheeling charges) and a potential strong ramp-up in its domestic RE presence. TNB also appears to be the biggest winner in the recently awarded corporate green power programme (CGPP).
The house cuts the FY23-25F earnings estimates by 11-5% to account for the negative fuel margins and lower JV & associate contributions. As such, RHB trimmed its TP to MYR12 accordingly.
