KUALA LUMPUR (Jan 5): Maybank Investment Bank Bhd and MIDF Amanah Investment Bank Bhd have downgraded their Tenaga Nasional Bhd (TNB) share recommendations and target prices (TP) over higher regulatory risk concerns.
This came about after TNB said the government has decided to go on with current parameters of the incentive base regulation for Regulatory Period 2 Extension, and continue the current electricity tariff schedule, effective from Saturday (Jan 1, 2022) until further notice.
MIDF analyst Hafriz Hezry wrote in a note on Wednesday (Jan 5) that MIDF downgraded its TNB share recommendation to neutral from buy and lowered its target (TP) for the utility to RM9.55 from RM11.80 previously as the decision to delay the tariff review came as a surprise. Hafriz added that potential market perception of the latest development as a regulatory risk to TNB may cap upside for the stock’s price in the near-term.
"While we understand the government’s rationale (politically challenging for a tariff hike amid the current floods), the move would inevitably raise regulatory concerns for TNB,” Tan said.
Hafriz thinks "prospects of a valuation re-rating for TNB could be pushed out further” as MIDF incorporates higher risk premium into its discounted cash flow valuation for TNB to reflect the emerging regulatory concern.
On Friday (Dec 31, 2021), TNB said in a Bursa Malaysia filing that the government had also decided to continue the implementation of the Imbalance Cost Pass-Through (ICPT) mechanism and maintain an ICPT rebate of two sen/kWh currently implemented for all customers including domestic customers with monthly electricity consumption of 300kWh and below, effective from Jan 1, 2022 until further notice.
TNB said domestic customers refer to residential customers.
"TNB also wishes to inform that the impact of ICPT implementation, based on the Regulatory Implementation Guidelines, is neutral on TNB and will not have any effect to its business operations and financial position,” the utility said.
At Bursa on Wednesday, TNB’s share price fell two sen or 0.22% at 2.34pm to RM9.16 for a market capitalisation of about RM52.3 billion.
TNB has 5.71 billion issued shares, according to its latest quarterly financial report.