Tenaga: Electricity demand may drop due to Covid-19 but earnings to be largely unaffected

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KUALA LUMPUR (April 9): Tenaga Nasional Bhd told analysts that electricity demand may drop due to the Covid-19 outbreak, but the Malaysian state-controlled utility expects earnings to be largely unaffected as the group is shielded by the regulated asset base (RAB) structure for power transmission and distribution, and the power purchase agreement scheme for electricity generation.

Hong Leong Investment Bank Bhd analyst Daniel Wong’s note today quoted Tenaga as saying the company will be compensated in the upcoming imbalance cost pass-through review to address the shortfall of earnings due to lower than assumed power demand.

"Hence, there will be minimal impact to P&L (profit and loss accrual accounting), but delay in terms of cash flow into 2H20. Management reiterated that Tenaga will only contribute RM150 million with the remaining by KWIE (Kumpulan Wang Industri Elektrik) (net inflow of RM1.1 billion in 2019) to fund the government’s 'Covid-19 stimulus' measures,” he said.

The measures include a 15% discount in monthly electricity bills to hotels, travel agencies, airlines, shopping malls, conventions and exhibitions centres; a 2% discount to all users; and tiered discounts of 15-50% to residential segment of up to 600kWh/month. 

“The RM150 million is on top of [Tenaga's] CSR (corporate social responsibility) activity of RM10 million commitment to support Covid-19. Management intends to claim tax [relief] for the RM160 million commitment, indicating minimal impact of RM120 million to net profit. The accelerated Tenaga investment of RM2 billion on top of existing RM11 billion commitment in 2020, will be covered under the RAB structure. Hence, Tenaga will not be materially impacted by the announced stimulus.

"We (Hong Leong) maintain 'buy' recommendation on Tenaga (shares) with unchanged DCFE (discounted cash flow to equity)-derived TP: RM13.50. Tenaga’s earnings are expected to be sustainable at current level with stable cash-flow and dividend payout. Management is committed [to] its dividend payout policy [of] 40-60% of its adjusted earnings, and we are imputing 60 sen payout for FY20-21,” Wong said.

At 10.40am, Tenaga shares rose 10 sen or 0.84% to RM12.04, valuing the company at RM67.9 billion. The counter saw 635,400 shares traded.