CIMB Backs TNB Despite RM5.8 Billion Tax Overhang

BusinessToday

4 days ago

CIMB Investment Bank Bhd (CIMB Securities) has maintained its BUY rating on Tenaga Nasional Bhd (TNB) with an unchanged target price of RM15.75, even as the utility giant faces a new tax challenge after receiving a Notice of Additional Assessment for 2022 amounting to RM840.1 million from the Inland Revenue Board (IRB).
The research house said this latest assessment brings the total cumulative amount from notices issued for 2013–2021 to RM5.89 billion. It added that there remains a risk the IRB could issue further assessments for 2023 and 2024, which may push the total closer to RM8 billion based on capital expenditure trends.
TNB is currently assessing its legal options in response to the notice, taking into account its pending application for Investment Allowance (IA) under Schedule 7B of the Income Tax Act 1967 submitted to the Ministry of Finance. CIMB Securities highlighted that this follows the Federal Court's recent decision to overturn earlier rulings in TNB's favour regarding a similar assessment for 2018, concluding that the correct tax schedule applicable is Schedule 7B rather than Schedule 7A.
CIMB Securities noted that in the worst-case scenario where TNB pays the full amount, including possible future assessments, the impact on its discounted cash flow-based target price could be as high as RM1.30 to RM1.40 per share, or 8–9%. However, this impact would be smaller or even negligible if the group's IA claims are approved.
Despite the tax uncertainty, the house maintained its positive stance on TNB, citing its reasonable valuation at 7.0 times forecast FY2026 enterprise value-to-EBITDA and dividend yields projected between 3.3% and 4.0% for FY2025 to FY2027. The brokerage expects the company's earnings to remain resilient, underpinned by regulated returns and stable operational cash flows.
As of July 28, TNB shares traded at RM13.60. Related