KUALA LUMPUR (Dec 9): The government's commitment to ensure the resilience of Tenaga Nasional Bhd's earnings via the incentive-based regulation (IBR) is expected to add visibility to the company's financials.

CIMB Investment Bank Bhd analyst Saw Xiao Jun wrote in a note today
stronger  earnings visibility might enable state-controlled utility Tenaga to pay more  dividends.

"As Tenaga needs to optimise its under-leveraged capital structure, we  would not be surprised if it raises its dividend payout in the near future. This tariff increase and higher dividend payout could be the re-rating catalysts for Tenaga," Saw said.

CIMB's note followed the government's move to revise the electricity rebate for consumers. Yesterday, Tenaga said the government would implement an imbalance cost pass-through (ICPT) rebate of 1.52 sen/kWh between Jan 1 and June 30 next year.

Tenaga said the rebate would be applicable to all users except domestic consumers with monthly electricity usage of 300 kWh and below. The proposed rebate compares to the current 2.25 sen. 

The ICPT, which forms a part of the IBR, enables Tenaga to reflect fuel and generation cost changes in consumers' electricity tariff every six months. The ICPT requires the government’s approval. 
 
Today, Saw said the 1.52 sen rebate would have a neutral impact on Tenaga's financials.

As such, he said CIMB had maintained its "add" call for Tenaga shares with an unchanged target price of RM15.70. Tenaga shares fell as much as eight sen or 0.6% to RM13.38 before cutting losses at RM13.42 for a market value of RM75.69 billion at 10:21am.
 
"All of these developments are neutral for Tenaga’s earnings. However,  the higher average electivity tariff (due to a lower rebate) attests to the government’s commitment to the IBR, which ensures that changes in fuel prices will not affect Tenaga’s transmission and distribution earnings. 

"We believe that the government will continue to adhere to the IBR going forward. This should ensure that Tenaga’s earnings continue to be resilient, regardless of the volatility in fuel prices,"  Saw said.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)