The rate discount may not be maintained next year

PETALING JAYA: The current electricity tariff discount of two sen per kilowatt hour (kWh) for all user categories was maintained from July 1 to the end of the year, fully funded by the Industry Fund of electricity (KWIE).

With this, the net tariff for the second half of 2021 remains unchanged at 37.45 sen per kWh.

This rate discount could be extended due to Tenaga Nasional Bhd’s (TNB) continued the excessive recovery of production costs in the first half of 2021.

However, Maybank Investment Bank (IB) Research expects TNB to start undercollecting production costs in the second half of the year, as coal prices have risen sharply in recent months.

“So, don’t expect the tariff discount to continue in the first half of 2022, although economic activities are expected to normalize by then, based on the government’s immunization schedule,” he said. in a note to customers.

According to Maybank IB, TNB revealed that it had recovered its production costs in the first half of 2021, as gas prices fell by RM17.16 per million British thermal units (MMBtu) from the benchmark of 27 , RM20 per MMBtu was more than the increase in coal prices of USD 70.06 (RM 290.71) per tonne from the benchmark of USD 67.45 (RM 279.88) per tonne.

Analysts predict earnings stability for the group, with the stock offering a decent dividend yield of around 5%.

At 4.7 times the company’s value-to-earnings ratio before interest, taxes, depreciation, and amortization forecast for fiscal year 20210 (FY21), MIDF Research said the TNB is trading at a steep discount to the average of the sector 9.4 times.

Meanwhile, its foreign stake deteriorated sharply to 12% from a peak of 28%.

The research firm said any move to unlock the value of investments, especially in renewable energy assets – estimated at 25% of capacity – could serve as a positive catalyst.

Maybank IB and MIDF have “buy” calls on the shares with a target price of RM12 and RM11.80, respectively.

At the same time, TNB is currently discussing with the French Energy Commission the parameters of the third regulatory period (RP3), which will take effect from 2022 to 2024.

According to the research firm, some of the parameters include the required rate of return and benchmark rates for coal and gas. Discussions are expected to be completed in the fourth quarter of this year.

He explains that TNB accounts for higher or lower fuel costs through under-recovery or over-recovery of costs in the revenue line each financial quarter.

However, cash actually received or returned is only recognized every six months when the government announces a rate discount or rate surcharge.

He said TNB recognized excessive cost recovery of RM327.3 million in the first quarter of FY21.

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