TNB dip seen as buying chance on strong long-term outlook

The Star

2 days ago

KUALA LUMPUR: Any short-term share price weakness in Tenaga Nasional Bhd (TNB) is seen as a buying opportunity for long-term investors, according to Hong Leong Investment Bank (HLIB) Research.
The utility giant dropped 58 sen, or 3.97%, to RM14.02 at 10.26 am, though it has gained 0.43% over the past month.
Despite the dip, HLIB Research views this weakness as an opportunity to capitalise on the company's prospects.
The Federal Court today allowed the Inland Revenue Board's (IRB) appeal to reinstate an additional tax assessment of RM1.25bil against Tenaga Nasional Bhd (TNB) for the 2018 assessment year, following a penalty remission from the original RM1.8bil notice.
'This decision has a potential negative financial impact on the earnings and net assets of the company and group for the financial year ending Dec 31, 2025. However, the decision is not expected to have any operational impact on the company and group,' TNB said in a filing with Bursa Malaysia.
Despite this, HLIB Research remains unconcerned about the potential one-off tax provision.
'We remain confident that TNB will reach a constructive resolution with all relevant stakeholders (particularly IRB) to minimise impact on its balance sheet and cash flow while asserting its entitlement to Investment Tax Allowance (ITA).
'Subsequently, TNB will proceed with the formal ITA application process to determine the final eligible amount, which will be resolved in due course, resulting neutral impact over the longer term,' it said.
HLIB Research has maintained a 'buy' call on TNB with an unchanged target price of RM16.20.
'Looking ahead, we expect Tenaga to benefit from a higher Regulated Asset Base starting in 2025 under RP4-RP5 (2025-2030), as well as new tenders for gas power plants and renewable energy projects.
'We view any short-term share price weakness as a buying opportunity for long-term investors,' it said.
Meanwhile, TA Securities stated that they understand no provisions have been made for the disputed amount, given TNB's success in the case at multiple levels previously.
'As such, in the worst case that TNB provides for the RM1.25bil claim by the IRB, we estimate a -27% one-off hit to FY25F earnings and a -2% impact on net assets. However, we believe any decision to provide for the amount hinges on the progress made with IRB on TNB's Schedule 7B IA claim,' it said.
TA has maintained its "buy" call and target price of RM17.30.
'While this could be a one-off setback, albeit a sizeable one, it does not derail our structural thesis of an expansion in TNB's regulated asset base from an increase in grid capex to accommodate the energy transition.
'We note the sharp -2% (or -30sen) share price correction yesterday, which we believe may have more than reflected the potential RM1.25bil provision (which is equivalent to 21 sen per share),' it added.