Overall a decent year
Seasonally weaker
4Q21 results were in line with our forecasts, with non-fuel costs again seasonally higher. Some RP3 inputs were disclosed, and imply TNB not being worse-off. Nevertheless, soaring coal prices means concerns over the ICPT mechanism will continue to take centre stage. Maintain HOLD with a lower MYR9.30 (-3%) TP (DCF-based). We prefer Mega First (MFCB MK, BUY, CP: MYR3.53, TP: MYR4.30) in the Utilities space.
Results in line
Excluding the effects of MFRS 16, 4Q21 core net profit of MYR862m (-12% YoY, -39% QoQ) brings FY21 core net profit to MYR5,141m (+15% YoY), 4% below our forecast. TNB reversed previous Liberty Power provisions and provided incrementally for doubtful debts (excluded from normalised earnings). MFRS 16 raised 4Q21 EBITDA by MYR0.98b and lowered net profit by MYR187m. An 18sen DPS was declared, bring full-year DPS to 40sen (no special DPS), representing a payout ratio of 45%.
Demand recovers
4Q21 generation grew 7.8% QoQ as demand grew correspondingly by 9.5% QoQ. Full year demand growth was 1.2%. The proportion of coal generation in 4Q21 decreased by 3.2ppt QoQ to 57.7%. TNB recognised a hefty ICPT adjustment of MYR3.2b in 4Q21 (MYR1.3b in 3Q21), reflecting record-high under-recoveries as coal prices spiked. Meanwhile, regulated revenue remained in a net surplus position (MYR286m) for the quarter.
Some RP3 disclosure
Notable RP3 disclosures are: 1) regulatory WACC at 7.3% (unchanged), 2) coal at USD79/t (+17%) and 3) gas at MYR26/mmBTU (-4%). We thus expect Tenaga to broadly maintain its earnings run-rate in RP3. We lower our FY22/23 net profit forecasts by 10%/9% to reflect RP3 inputs and introduce FY24 forecasts. Our TP (DCF-based assuming 8.4% WACC and 1% LT growth) is consequently lowered to MYR9.30 (-3%). Management will host a results call this afternoon.