• 1H22 core net profit came in within our expectation, down 8% yoy mainly due to Cukai Makmur impact. We expect tax expenses to normalise in 2H22F.
• An interim dividend of 20 sen was declared (vs. 22 sen in 1H21). Retain Add.

Key results highlights

Tenaga Nasional’s (TNB) 1HFY22 core net profit was in line, at 51% of our full-year forecast but above Bloomberg consensus’ at 55%. 1H22 core net profit (excluding MFRS16 impact of RM474m related to lease liabilities and forex movement of RM195m)
declined 8% yoy, largely dragged by higher deferred tax (+RM283.2m, due to lower capital allowance but should normalise in 2H22F) and the one-off Cukai Makmur (+RM257.3m), despite stronger revenue from higher sales of electricity and imbalance
cost pass through (ICPT) surcharge. Management keeps its Cukai Makmur impact guidance of RM250m for FY22F, given that tax expenses should decline as the group claims more capital allowance in 2H22F.

Interim DPS of 20 sen

TNB’s allowance for doubtful debt (ADD) was lower in 1H22 at RM75.4m (vs. RM464m in 1H21) due to improvement in the economy. Its FY22 approved ADD is c.RM57m (vs. 2021’s c.RM200m) under the incentive-based regulation (IBR). We gather that TNB registered an approved return of c.RM2.3bn on its regulated business under the IBR framework in 1H22 (similar to 1H21 level). TNB declared an interim DPS of 20 sen in 1H22 (1H21: 22 sen), representing a dividend payout of 47.3% (based on management’s adjusted earnings for one-off items), broadly in line with our estimate of 55%.

Higher electricity demand yoy

The capex guidance for FY22F is RM11.8bn (annual average regulated capex: RM7.2bn, others: RM4.6bn). We gather that the regulated capex spending is on track, at RM2.6bn in 1H22, representing a 36% utilisation of the FY22F approved amount of RM7.2bn under the IBR. Electricity demand rose 5.7% yoy in 1H22 (vs. +4.4% yoy in 1H21), lifted by stronger demand across the board following border and economic reopening — i) commercial (+13.9% yoy), mainly contributed by retail, accommodation/business services, ii) industrial (+2.7% yoy), iii) domestic (+1.4% yoy), and iv) others (+2.6% yoy). TNB expects FY22F electricity demand to grow (approved demand forecast growth of +1.7% yoy vs. FY21’s 1.2% yoy growth), in line with Bank Negara Malaysia’s (BNM) FY22F GDP growth projection of 5.3-6.3%.

Reiterate Add

Our TP remains at RM13.30, based on its 5-year historical P/E of 15x. We like TNB as: i) it will likely keep its monopoly position in the electricity transmission and distribution segment, ii) it has decent dividend yields of >5% for FY22-24F, and iii) it is poised to benefit from Malaysia’s energy transition, i.e. additional grid investments and RE opportunities, which could boost earnings and improve public ESG perception of TNB. 

Source: CGS-CIMB Research - 30 Aug 2022