The weakening fuel prices are largely a boon for utility companies, says Kenanga Research.
In a sectoral report, the research firm believes fuel costs for coal and gas have peaked in the final quarter of 2022 based on the fact that the Indonesian benchmark coal price has retracted by 5% year-to-date to an average of US$291 per tonne from US$307 in 4Q22.
“TNB will fully recover the amount from a 20 sen per kilowatt hour ICPT surcharge from non-domestic customers and a RM10.4bil payment from the government,” the research house explained. “A strong cash flow will help to bring down TNB’s debts and interest serving costs. Recall, TNB was hit by high borrowing cost in 4Q22, as it resorted to short-term borrowings to fund working capital due to ballooning under-recovery of fuel cost,” it added.
The brokerage remained “neutral” on the utilities sector as it believes most key stocks are fully valued.
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