TNB downgraded after it shoulders electricity subsidy burden

 It will fork out up to RM150 million by absorbing the impact of electricity tariff fuel surcharge exemption for consumers.

Analysts are concerned TNB is absorbing costs that would normally be passed through to consumers.

PETALING JAYA:

Tenaga Nasional Bhd has been downgraded by research houses after it revealed it was shouldering the burden of additional electricity subsidy for households.

TA Securities and UOB Kay Hian downgraded TNB following its move and expect it to shave 2%-3% off the group’s earnings this year.

The government announced last Thursday that households consuming 800 kilowatt-hour (kWh) of power or less monthly will now be spared from the surcharge under the automatic fuel adjustment (AFA) scheme. The exemption was previously provided only to those using under 600kWh each month.

The next day, TNB said it will absorb the impact from the electricity tariff fuel surcharge exemption until the end of this year. This is expected to cost the national utility firm between RM120 million and RM150 million.

The cost covers more than eight million domestic users who consume between 600kWh and 800kWh of electricity monthly.

The AFA reflects changes in actual fuel costs and is implemented through a government-approved mechanism. Electricity customers have received rebates of RM3.1 billion since AFA’s introduction in July 2025 until April this year.

Eyebrows have been raised that TNB is now absorbing costs that would normally be passed through to consumers under the existing electricity tariff framework.

TA said the latest development came as a “negative surprise”. “Unlike during the Ukraine war when the government stepped in with subsidies to shield domestic consumers from electricity cost volatility, it appears that TNB is shouldering the burden this time around,” it said in a note today.

TA noted there is no clarity yet if TNB will offer to absorb additional costs if fuel prices remain elevated into FY2027.

“For now, TNB’s commitment to bear the additional cost is only for the Sept-Dec 2026 period.

“While the decision is noble and would perhaps buy long-term goodwill from the government, we reckon investors would now price in higher regulatory risk for TNB,” it said.

TA downgraded the stock to “hold” from “buy” while slashing its target price to RM13.80 from RM18 previously.

In downgrading TNB to “hold”, UOB Kay Hian said it could not say with certainty that this is a one-off move.

“We expect investors to gradually discount the sanctity of the incentive-based regulation and cost pass-through framework,” it added.

Nevertheless, a majority of the research houses covering TNB have “buy” calls with the average 12-month target price at RM16.17.

RHB Research maintained its “buy” recommendation, noting the additional cost TNB will have to bear is “manageable” as earnings will improve in the second half of the year.

It said a lower effective tax rate in the fourth quarter should more than offset the additional subsidy cost, adding coal and gas prices have also moderated from recent peaks, easing some of the pressure on fuel costs.

TNB had previously warned that fuel cost could climb further due to the prolonged Middle East conflict and upcoming winter season that will raise prices of coal, which makes up 60% of Peninsular Malaysia’s power generation.

TNB’s shares closed unchanged at RM13.04 today, valuing the group at RM76.01 billion. It has fallen 5.4% year to date. - FMT