TA Securities Holdings Bhd has maintained its buy call on Tenaga Nasional Bhd (TNB) with an unchanged target price (TP) of RM16.40 based on discounted cash flow (DCF).
“We believe that concerns over TNB’s tax disputes with the Inland Revenue Board (IRB) will likely unfold over a protracted period,” said the research house in a note on Dec 13.
Recall that TNB’s first dispute with IRB remains under evaluation after three years. To recap, TNB’s additional tax liabilities for 2013-17 amount to a maximum of RM6 bil. This translates to RM1.06 per share (8% of closing price) and 90% of gross cash pile.
“In the black skies scenario, where TNB pays the max amount, we estimate that free cash flow to equity (FCFE) in 2020-25 will remain positive.
“However, this may lead to an average reduced dividend capacity of 50% versus our forecasts.
“Nevertheless, we believe tax concerns on TNB are overblown and sentiment will likely recover,” it added.
Earlier in the news report dated Nov 29, TNB said it has been slapped with an RM3.98 bil additional tax assessment by the IRB, in what appears to be a revisit of a similar tax dispute involving the utility giant in 2015.
The news will cause a knee-jerk reaction that will exert downward pressure on TNB’s share price.
The amount, for three years of assessment in 2015-2017, is more than TNB’s net profit of RM3.88 bil for the nine-month period ended Sept 30, 2019 (9MFY19).
The additional tax bill comprised RM1.43 bil for 2015, RM1.25 bil for 2016 and RM1.3 bil for 2017.
This is not the first time TNB has received such notices from the IRB. In November 2015, the group announced it had received notices for the years of assessment 2013 and 2014 amounting to RM2.07 bil.
At the time, the utility group said “based on the legal advice obtained from our tax solicitors, TNB will be appealing against the said notices and the appeal process has commenced”.
