PETALING JAYA: RHB Research has upgraded its rating for the power sector to “overweight”, anchored by the positive outlook it has for the companies under its coverage, particularly its rerating of national electricity supplier Tenaga Nasional Bhd
(TNB).
While still keeping YTL Power International Bhd (YTL Power) as its top pick, the research outfit lifted its “neutral” call on TNB to a “buy”, on the back of limited regulatory risks for the latter.
This comes as the government is maintaining its imbalance cost pass-through (ICPT) framework, and making consistent payments to TNB.
“TNB has received RM9.13bil out of a total RM10.4bil in ICPT cost recovery during the first half of 2023 (1H23) from the government.
“The government is committed to subsidise RM5.2bil, with RM4.7bil of this to be remitted to TNB, in 2H23, so we estimate that the remainder will be collected from the surcharges imposed,” RHB Research analyst Sean Lim wrote a report.
As such, he is expecting ICPT receivables to decrease for TNB, relieving the company’s working capital pressure amidst moderating coal prices.
Concurrently, with the International Energy Agency anticipating global renewable energy capacity growth to continue reaching new highs this year and 2024, Lim predicted local engineering, procurement, construction and commissioning contractors to register strong earnings in 2H23 on their solid order books.
Moreover, he said the continuous imposition of surcharges should boost order books of the solar power players.
This is as medium and high-voltage commercial and industrial users are expediting their switch towards using solar energy.
Moving the focus to his top choice YTL Power, Lim said while Singapore’s Energy Market Authority had introduced a temporary price cap from July 1 on wholesale electricity prices, RHB Research believes the price cap will have a minimal impact on YTL Power as 75% to 70% of its generated volume is sold to its retail arm.
He said the portion sold to retail is generally locked in under different contracts ranging from six months to two years in fixed prices, and hence, margins are mostly fixed, since YTL Power has also entered into competitive gas contracts for the next few years.
The securities firm has a target price of RM10.40 and RM1.55 a share for TNB and YTL Power, respectively, while also holding a “buy” call on clean energy group Solarvest Holdings Bhd with a target price of RM1.28 a share.
