KUALA LUMPUR: The government, through Tenaga Nasional Bhd (TNB), will spend much less on subsidy allocation, estimated at under RM2 billion for the first six months of 2024 from more than RM5 billion in the second half of 2023.
This is in tandem with the removal of electricity rebate for certain domestic users as well as lower fuel costs, analysts said.
The impact of TNB's earnings, however, is neutral as the national utility company can pass any fluctuation in costs of gas and coal to consumers under the Imbalance Cost Pass Through (ICPT).
Nevertheless, a lower subsidy allocation will benefit TNB in terms of reduced receivables, allowing for stronger cash flow and potentially leading to higher dividend payment, analysts said.
They noted that TNB had budgeted RM1.9 billion for subsidy in the first half of 2024 compared to a massive RM5.2 billion for the July-December 2023 period.
The Energy Commission announced last Friday the tariff surcharge for the first half of 2024 pursuant to the ICPT mechanism.
Although there is no surcharge for domestic usage from 600kWj to 1,500kWj, the rebate of RM12 to RM32 will no longer be granted.
This could result in increases of RM12 to RM32 in electricity bills. Consumers, who use 600kWj of electricity or less will continue to receive rebate of 2 sen/kWj.
For residents with high usage exceeding 1,600kWj, the tariff surcharge is unchanged at 10 sen/kWj.
For commercial and industrial users, the tariff surcharge of 17 sen/kWj in the first half of 2024 is the same as the second half of 2023.
Tradeview Capital Sdn Bhd vice president Tan Cheng Wen said the adjustment should be earnings-neutral for TNB as any adjustment is essentially passed on to consumers.
"Basically, this setup enables TNB to pass through the fluctuation in fuel cost. So, the savings are not actually captured at the TNB level because of the ICPT. It is always passed on to the consumers, whether it's savings or an additional surcharge," he told Business Times.
Nevertheless, Tan believes that the revision of subsidies has a high likelihood of improving TNB's cash flow, as the removal of rebates directly reduces its ICPT receivables.
"However, we view a higher dividend payment as unlikely as TNB still needs to build up its cash reserve to address other areas such as upgrading its electricity transmission network," he said.
Overall, Tan said as the tariff revision only affects a small proportion of domestic users and there are no changes to commercial users, there could be "very minimal" (or even zero) impact on the country's inflation rate.
He added that there is nothing directly affecting the cost of goods and services to be hiked.
TA Securities Holdings Bhd said the widening of targeted subsidies by removing rebates for high electricity users does not come as a surprise, as this was already announced in 2024 Budget.
However, the firm said while the tariff revision is considered "neutral" on TNB's earnings for FY24, the removal of rebates for high electricity users indirectly decreases the ICPT receivables for TNB in the first half of 2024.
In early November, TNB received RM2.35 billion ICPT cost recovery for July-September 2023 period.
"The government's commitment to uphold the ICPT mechanism has aided in reducing the group's ICPT receivables. Evidently, the utility giant's ICPT receivables has declined over the past quarters in tandem with the drop in fuel costs and consistent payment received from the government.
"The expected continuous drop in ICPT receivables will improve TNB's cash flow and potentially lead to higher dividend payment," it said in a note.
TA Securities reiterated its 'buy' call on TNB with an unchanged target price of RM11 based on a discounted cash flow valuation, using a discount rate of 7.2 per cent and a growth rate of 1.4 per cent.
The firm made no change to its earnings forecasts for TNB.
Public Investment Bank Bhd (PublicInvest) said the continuation of ICPT has a neutral impact on TNB, reflecting the changes in fuel and other generation-related costs in the electricity tariff every six months.
PublicInvest maintained its "Outperform" call for TNB with an unchanged target price of RM11.50.
"TNB has submitted proposal for Regulatory Period 4 (RP4) to regulator in early December 2023. We expect more policies will be ironed out to provide more clarity and encourage investment in energy transition such as third party access (TPA) to the grid and green energy export framework.
"This is to ensure the sustainability of the system and self-sufficiency capital expenditure funding," it said.