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PETALING JAYA: Tenaga Nasional Bhd
(TNB) is expected to see its cash flow improve in the upcoming quarters on the back of lower operating costs and favourable power demand growth.
In a report, TA Research said TNB’s imbalance cost pass-through (ICPT) receivables are anticipated to decline in the coming quarters following the recent softening and stabilisation of fuel costs.
“We expect the group to register lower finance cost as it gradually improves its gearing ratio, driven by an improvement in the group’s operating cash flow,” the research firm said in a report.
It noted that in the second quarter ended June 30, 2023 (2Q23), TNB’s receivables had dropped to RM15.1bil against the RM19.9bil recorded in 1Q23, mainly due to lower ICPT receivables as the utility group recognised lower fuel costs, in tandem with the drop in global fuel energy prices.
Meanwhile, RHB Research in its report said TNB’s operating cash flow had strengthened to RM11.9bil in 2Q23, lowering its net gearing to 0.72 times from 0.83 in 1Q23.
However, it said that the group’s first half of financial year 2023 (FY23) core profit of RM1.8bil fell below expectations due to negative fuel margins and weaker joint-venture (JV) and associate contributions.
The 2Q23 core earnings, meanwhile, fell 14% to RM828mil despite the demand for electricity in Peninsular Malaysia increasing by 7% quarter-on-quarter in 2Q23, as a result of higher consumption from the commercial and industrial segments amidst flattish domestic consumption.
“Electricity demand rose in tandem with gross domestic product growth in 2Q23 with a new peak demand of 19,716 megawatt (MW) recorded in May.
“We saw a rise in the coal generation mix to 60.1% (1Q23: 53.7%) at the expense of the gas mix, which in turn dropped to 34% (1Q23: 39.5%),” said RHB Research.
It noted that the group’s current renewable energy (RE) capacity is at 3.9 gigawatt or 17% of total capacity.
“We believe TNB is one of the key beneficiaries of the National Energy Transition Roadmap – largely from the potential earnings upside from higher transmission and distribution assets (including wheeling charges) and a potential strong ramp-up in its domestic RE presence.
“TNB also appears to be the biggest winner in the recently awarded corporate green power programme.”
But to account for the negative fuel margins and lower JV and associate contributions, it has cut its FY23-FY25 earnings estimates by 11% to 5%. It has also lowered the stock’s target price to RM12 from RM12.40, but maintains a “buy” call on the firm.
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