MIDF called on TNB’s latest results as below its expectations, the utility giant’s 3QFY23 result was still dragged by negative fuel margins and came in weaker than expected. However, the house expects the drag to be temporary with a potential recovery next financial year.
Tenaga reported a core net profit of RM793m for its 3QFY23, bringing 9MFY23 core earnings to RM2.55b. This made up 64%/55% of consensus full-year estimates. For illustration, excluding negative fuel margins, MIDF estimates 9MFY23 core earnings would have registered at RM3.32b, making up 84% of FY23 forecast.
Among the key highlights, the group’s core earnings dropped -39.1% yoy mainly due to negative fuel margin at Genco, though the impact was partly cushioned by a lower effective tax rate given higher capital and reinvestment allowance claims. Sequentially, earnings showed some recovery as the negative fuel margin narrowed to -RM202m in 3QFY23 compared to an average -RM283m/quarter in 1HFY23 given the gradually stabilising coal prices. On a cumulative basis, 9MFY23 core earnings (-22%yoy) were similarly dragged by negative fuel margins, but regulated earnings growth remained intact, up +5%yoy to RM3.56b as capex reaccelerated following delays in the prior 2 years given the pandemic. The house expects the drag from negative fuel margins to normalise in FY24 judging by stabilising market coal prices. Coupled with the steady growth of regulated earnings, we expect Tenaga’s FY24F earnings to register a meaningful recovery.
On a positive note, the balance sheet continued to improve. Receivables receded further to RM13.42 (-8%qoq) from improved cost recovery via ICPT and collection of Government subsidy. Net gearing eased to 75% (2QFY23: 78%) as Tenaga continues to pare down short-term debt easing working capital requirements on the back of easing fuel prices.
MIDF trims its FY23F net profit by -14% to reflect a larger negative fuel margin for Genco but leaves FY24F/25F unchanged as the house expects fuel margins to stabilise next year from stabilising coal prices.
The house maintains TP at RM11.00 (WACC: 8.3%), and believes TNB as a key beneficiary of NETR given the accelerated grid capex to accommodate higher VRE penetration, which is expected to be underpinned in the upcoming RP4 capex and regulated asset base (RAB) determination plus aggressive 70% RE penetration target under NETR paves way for Tenaga’s RE asset expansion.
