• Bloomberg reported that Malaysia will start reducing electricity subsidies for large businesses and multinational companies. Small and medium-sized companies and those involved in agriculture and food production will not be affected. Electricity subsidies are expected to cost RM30bil in 2023F.

• Without government subsidies, large businesses and multinational companies would have to pay higher electricity bills. They would have to bear the increase in electricity tariffs themselves.

• We view this development positively. As the Malaysia government would not be subsidising the increase in electricity tariffs for large businesses anymore, this means that the amount owed by the government to TNB would be lower. This would slow the increase in the receivables number in TNB’s balance sheet.

• TNB’s receivables stood at RM22.3bil as of end-September 2022 compared with RM19.2bil as of end-June. Out of the RM22.3bil, the ICPT payments amounted to RM15.5bil.

• In 9MFY22, industries accounted for 38% of TNB’s electricity sales volume while the commercial sector accounted for another 33%. The residential sector made up an additional 27% of TNB’s sales volume while mining, agriculture and public lighting accounted for the balance 2%.

• Companies in the industrial sector are those involved in electricity and electronics, petrochemicals, iron and cement products. The commercial sector consists of hotels, shopping malls and educational facilities.

• We think that there would be a tariff surcharge in 1HFY23 as the costs of coal and gas have surged. However with the exception of large businesses, the other users would still be subsidised by the government. Hence effectively, there would not be a hike in electricity tariffs for the other electricity users.

• We maintain BUY on TNB with a fair value of RM11.80/share. TNB is currently trading at a FY23F PE of 11x, which is lower than its 2-year average of 15x.

Source: AmInvest Research - 15 Dec 2022