29/11/2023 12:21 PM

KUALA LUMPUR, Nov 29 (Bernama) -- Hong Leong Investment Bank (HLIB) is positive on Tenaga Nasional Bhd's (TNB) earnings outlook as the country's largest utilities group will be leveraging on the National Energy Transition Roadmap (NETR).

Under the NETR, TNB is expected to accelerate its energy transitioning plan and further diversify its earnings base, the investment bank said. 

In its research note, HLIB said TNB has also been reporting improving cashflow due to the ongoing Imbalance Cost Pass-Through (ICPT) mechanism and drop in energy prices.

“We maintain our 'buy' recommendation on TNB with unchanged discounted cash flow to equity-derived target price (TP) of RM11.00.

“We are positive on TNB’s long-term commitment to the environmental, social and governance (ESG) growth path, while ensuring returns to shareholders,” HLIB said.

However, it said TNB's earnings may continue to deteriorate in the fourth quarter of this financial year given the usual timing of accelerated operating expenditure during the quarter.

Last Friday, TNB reported a 3.7 per cent lower net profit of RM856.20 million for the third quarter (3Q) ended Sept 30, 2023, which it attributed to negative fuel margins during the quarter and higher finance cost.

Meanwhile, Kenanga Research also maintained its “outperform” rating for TNB, with a discounted cash flow-derived TP of RM11.45.

“The negative fuel margin is unlikely to recur in the next financial year (FY2024) given the stabilising coal prices, while lower fuel costs will bring down its ICPT receivables, resulting in interest savings,” it said.

Kenanga Research said it continues to like TNB for its dominance in power generation, transmission and distribution in Malaysia; its defensive earnings backed a resilient domestic economy and assets that are largely regulated; and its heavyweight index-linked stock status. 

At 12.06pm, TNB shares were up 2.0 sen to RM9.91 with 1.35 million shares traded.


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