MAYBANK IB Research has reiterated its buy call on national utility giant Tenaga Nasional Bhd’s (TNB) shares despite generation data suggesting Peninsular Malaysia’s electricity demand is likely to decline in 2020 due to the Movement Control Order (MCO).
“TNB is relatively sheltered from the effects of demand fluctuations with only the ‘Customer Services’ segment with RM1.1 bil of annual revenue being subjected to demand risk, while the Industry Fund should adequately cover the potential shortfall in fixed regulated revenue,” it said in a statement today.
It said the remaining RM13.5 bil of annual regulated revenue is theoretically fixed, with any shortfall to be claimed from the Industry Fund.
“Assuming a hypothetical two months MCO, we estimate a potential shortfall of RM540 mil for 2020, a likely manageable amount for the Industry Fund,” said Maybank IB.
The research firm said power generation is unsurprisingly down since the MCO and potential revenue shortfall is manageable.
“Based on daily regulatory logs, Peninsular Malaysia generation has contracted by 25% since MCO started on March 18.
“Annualising the run-rate and assuming demand trended in accordance to generation, we estimate every month of MCO would lower full-year demand by 2%, all else being equal,” it said.
Maybank IB said Peninsular Malaysia demand is likely to decline in 2020, only the second time in recent history with the first, a -1.3% in 2009.
It made a buy call on TNB with a 12-month target price (TP) of RM14, a 16% upside from the current price of about RM12.60, adding that TNB remains among its conviction picks.
“We like TNB for its relative earnings stability and recall generation profits are dependent on plant availability, not generation.
“TNB also offers a relatively decent recurring dividend yield over 4%,” it said. — April 21, 2020, Bernama
