Friday 29 Mar 2024
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KUALA LUMPUR: TNB Nasional Bhd (TNB) saw its market value shrink by RM2.6 billion yesterday as investors offloaded its shares on the government’s announcement of a new, lower electricity tariff.

TNB’s counter, which opened at RM14.94 yesterday, was stable up until the moment when the Energy, Green Technology and Water Ministry (KeTTHA) announced that electricity tariff in Peninsula Malaysia had been revised downward by 2.25 sen per kilo watt hour (kWh).

Shortly after the market resumed in the afternoon, TNB (fundamental: 1.3; valuation: 1.8)’s stocks were dogged by negative sentiment on concerns that its earnings would be affected by the lower electricity tariff.

The counter plunged as much as RM1.64 or 11% to an intraday low of RM13.22, dragging with it the benchmark FBM KLCI, which also tumbled to as low as 1,790.8 points — down 20.18 points or 1.11% — as TNB is one of its 30 component stocks.

TNB’s counter regained later in the evening to close at RM14.40, down 46 sen or 3.1% from its closing price of RM14.86 on Tuesday, giving it a market capitalisation of RM81.3 billion, down RM2.6 billion from Tuesday’s RM83.9 billion.

The KLCI also eased in tandem to close at 1,798.95 points, representing a drop of 12.17 points or 0.67%.

KeTTHA’s tariff cut announcement yesterday was rather awkward for the government as the ministry had just told local news agencies last week that there would not be an immediate electricity tariff reduction, claiming that it was already a highly subsidised item, which drew much flak from the public.

In a statement yesterday, KeTTHA said the revised tariff rate will be effective from March 1 to June 30 this year.

“After factoring in the lower fuel cost, KeTTHA wishes to inform that cost savings under the ICPT (imbalance cost pass-through) mechanism, which can be channelled back to consumers in the form of lower tariff, amounted to RM726.99 million,” the statement read.

The ICPT is a mechanism that allows the government to pass any fuel cost increase or reduction to consumers. The previous tariff hike on Jan 1 last year — at an average 15% — was seen as generous to TNB in view of falling coal and fuel prices and an improved fuel generation mix.

The ministry also pointed out yesterday that this latest adjustment is equivalent to a 5.8% reduction to TNB’s average tariff, which is 38.53 sen per kWh.

Notably, the new revision only applies to domestic and residential consumers who consume more than 300kWh in a month, said KeTTHA, adding that this is because tariff rate for the initial 200kWh (or so-called Lifeline Band) has been fixed at 21.8 sen per kWh since 1997, and that the subsequent 100kWh (201kWh to 300kWh) has been fixed at 33.4 sen per kWh since 2009.

For Sabah and Sarawak, the new set of tariff rates means a reduction of 1.2 sen per kWh for Sabah and the federal territory of Labuan (also from March 1 to June 30). Sarawak’s electricity tariff, however, does not fall under KeTTHA’s jurisdiction.

“This round of tariff reduction means that the federal government will have to maintain its budgetary fuel subsidy of RM260 million a year,” KeTTHA noted.

Etiqa Insurance & Takaful executive vice-president and head of investment management research Chris Eng is of the view that the reduction in tariff should have a neutral impact on TNB’s core net profits.

“The lower tariff will reduce TNB’s revenue by about RM700 million to RM800 million over the next four months. However, this will be offset by RM500 million to RM600 million in cost over-recovery that TNB has recognised over the past few months, as well as another RM400 million that will be realised in the next four months,” he told The Edge Financial Daily when contacted.

Hong Leong Investment Bank Bhd analyst Daniel Wong concurred, saying that the latest adjustment is merely passing back TNB’s cost savings to consumers.

“It is not a bad element to TNB, but the negative sentiment in the market today (yesterday) would most probably continue tomorrow (today),” he said when contacted.

Wong also said he would likely lower his target price on TNB’s stock as he had previously priced in a portion of the over-recovery effect.

Eng said KeTTHA could have made the announcement at a scheduled time to prevent the market’s knee-jerk reaction yesterday.

“TNB was well aware of the cost over-recovery that it was experiencing, and prudently did not include it in its core net profits. It had also advised the investment community that a tariff revision should take place at some point to utilise these profits,” Eng said.

“The government, however, should not have reduced the tariff but instead increased the price of regulated gas to remove the public’s subsidy mentality,” he added.

Petroliam Nasional Bhd supplies TNB with 1,000 million standard cubic feet per day of natural gas at a subsidised price of RM15.2 per million British thermal unit (mmbtu). Imported liquefied natural gas that TNB uses costs around RM46.5 per mmbtu.

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This article first appeared in The Edge Financial Daily, on February 12, 2015.

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