KUALA LUMPUR: Tenaga Nasional Bhd (TNB) is anticipated to record a higher first quarter of the financial year 2023 (1QFY23), along with an improved balance sheet and cash flow situation, as the utility company is predicted to normalise its earnings.
Hong Leong Investment Bank (HLIB) predicted that investors would regain confidence after TNB releases its 1QFY23 results.
It said that TNB had previously reported disappointing profitability in the fourth quarter of the 2022 fiscal year (4QFY22) as a result of accelerated and modified expenses during the period.
According to HLIB, the average fuel energy costs for the Malaysian power industry are predicted to follow a similar downward trend. This will lower TNB's working capital needs for the first quarter of FY23.
Apart from that, HLIB said the latest approval for Imbalance Cost Pass-Through (ICPT) of RM16.2 billion for the first half of the financial year 2023 (IHFY23) reaffirmed the current government's commitment towards the ICPT mechanism.
"Government would subsidise RM10.8 billion while the remaining RM5.4 billion was pass-through to non-domestic end users in terms of higher average tariff surcharge of 3.7 to 20.0 sen/kWh in 1HFY23.
"Tenaga has received RM4.36 billion in Jan 2023, while the remaining RM6.4 billion will be repaid in five equal installments over five months," it said.
Despite the delay in the government's payment for Feb to March which is due to the re-tabling of Budget 2023 and the expected lump sum payment of RM3.8 billion by the middle of May, the firm believes that there will be improvement in TNB's balance sheet.
Other than that, the firm is also predicting lower receivables in the upcoming 1QFY23 results announcement.
Due to the 4QFY22 results disappointment, the latest Mar 2023 numbers indicated a slight drop in foreign shareholding to 12.90 per cent after climbing up to 13.11 per cent in Jan 2023.
Nonetheless, HLIB anticipates the foreign shareholders to relook into TNB with normalisation in performance for the upcoming 1QFY23 result.
"Management remains committed towards the group's newly initiated ESG pathway – Tenaga Net Zero 2050 with ongoing investments into renewable energy, smart grids as well as electric vehicle (EV) infrastructures.
"We also expect stronger dividend payout in FY23 to regain investors' interest," it said.
The firm maintained 'buy' on TNB with a target price of RM12.20 while earnings for the company are predicted to sustain into 2023 and cash flow is expected to improve given the reversal of the timing mismatch of ICPT.