Analysts see TNB in positive light

PETALING JAYA: Analysts remain positive on Tenaga Nasional Bhd (TNB) after the government announced that the electricity tariff will not be changed for the peninsular until 2020.
At today market close, TNB’s share price gained 14 sen or 0.9% to RM15.12, with some 10.34 million shares changing hands.
HLIB Research said TNB will get compensation of RM900 million from the government in order to cover its higher energy fuel costs under the Imbalance Cost Past Through (ICPT) mechanism. It has assumed lower return on assets (ROA) for coming period 2018-2020.
“The announcement will allay investors’ concerns on government’s commitment in honouring the Incentive Based Regulation (IBR) and ICPT mechanisms even in the event of high fuel costs,” the research house said in a report today.

HLIB Research expects TNB’s earnings and cash flow to be stable due to the implementation of the IBR/ICPT mechanisms.

“The expected IBR revision to lower return on regulated assets by 2018 will be offset by new contributions from associates and power plants. Shareholders also stand to benefit from higher dividend payout.”
The research house is maintaining a “buy” call on TNB with an unchanged target price of RM17.
Meanwhile, AnInvestment Bank Research and MIDF Research both remain “overweight” and positive respectively on the power sector, with TNB as its top pick in the sector.
MIDF said key catalysts for TNB are dividend catalyst on the back of an under-geared balance sheet and capital optimisation exercise; overseas expansion provides scope for stronger growth in the mid-term; strong earnings visibility post-ICPT implementation and at just 12 times FY18 forecast price-to-earnings ratio, TNB trades at a discount to sector average of 13 times and the index’s 16-17 times.
It added that the development on base tariff is positive, pending further details of actual components making up TNB’s required revenue for the second regulatory period (RP2) from January 2018 to December 2020.