Fuel cost absorption seen having minimal impact on TNB earnings

KUALA LUMPUR: Tenaga Nasional Bhd's (TNB) additional RM120 million to RM150 million fuel cost absorption for households is expected to have only a minimal impact on its earnings, according to RHB Research.

Analyst Max Koh said the allocation, estimated for the September to December period, would account for about two per cent to three per cent of RHB Research's financial year 2026 (FY26) earnings forecast for the utility company.

He said the allocation would support the extension of electricity bill exemptions to domestic users consuming between 600 and 800 kilowatt-hours (kWh) a month.

Previously, the exemption was available to households consuming less than 600kWh a month.

The extension, which covers the monthly automatic fuel adjustment (AFA), retail charge and sales and service tax, would shield more households from higher electricity costs.

"TNB said the exemption is necessary to shield 90 per cent of residential customers from higher fuel prices, as the number of 600-800kWh consumers had risen to constitute 20 per cent of total user volume in July from 13 per cent in January," Koh said in a note.

Koh said TNB's share price had declined 12 per cent from its recent high, presenting an opportunity to accumulate the stock on price weakness.

He expects the company's earnings to improve in the second half of FY26, with a lower effective tax rate (ETR) expected to provide support.

He forecasts the ETR to fall to 18 per cent in the fourth quarter, which would more than offset the additional electricity subsidy allocation.

While the possibility of the subsidy allocation being extended into FY27 cannot be ruled out, Koh noted that fuel price conditions could ease the pressure on TNB.

The Energy Commission expects the applicable coal price to remain at US$122 per tonne until year-end, down from US$131 per tonne previously, while Tier-2 gas prices are expected to remain at RM59 per million British thermal units, 17 per cent below their recent peak in June.

"We also see the potential for the government to allocate funds from the Electricity Industry Fund (KWIE) to subsidise fuel costs. We estimate a RM1.7 billion balance in the KWIE," he added.

He left his FY26 and FY27 earnings-per-share forecasts unchanged and maintained a "Buy" call on TNB with a target price of RM16.50, alongside an estimated FY26 dividend yield of about four per cent.

The target price is based on 19 times FY26 price-to-earnings ratio, incorporating a four per cent environmental, social and governance discount.

Koh said the premium valuation was supported by TNB's position as a key beneficiary of the National Energy Transition Roadmap and the regulated framework, which provides a stable earnings base.

"Assuming TNB's ETR is maintained at 23 per cent this year compared with our current 26 per cent base assumption, we estimate this would result in a four per cent upside to our target price and earnings-per-share projection," he said.