KUALA LUMPUR, Sept 21 — Tenaga Nasional Bhd (TNB) is projected to absorb RM120 million to RM150 million in extra costs over September-December 2026 from expanded government exemptions for residential users from automatic fuel adjustment (AFA), retail charges, and sales and service tax.

In a note today, CIMB Securities Sdn Bhd said that under the initiative, nearly one million additional residential users will be exempted (bringing the total to more than eight million users), based on the increase in the monthly usage threshold to 800 kilowatt-hours (kWh) from 600 kWh.

"TNB says the final impact would depend on the AFA charges during the protection period, which is a function of fuel costs,” it said.

CIMB Securities said this development comes as a negative surprise, as it expected TNB to claim back any government-sanctioned AFA subsidies from the Kumpulan Wang Industri Elektrik fund.

It said the utility company had also previously pledged a voluntary corporate contribution of RM150 million to support the government’s tiered electricity rebate initiative (April-September 2020) during the COVID-19 pandemic.

"However, we viewed that as an emergency response to a severe and unprecedented crisis,” it said.

CIMB Securities said it maintained a "buy” call on TNB, with an unchanged discounted cash flow (DCF)-based target price (TP) of RM15.90, and cut TNB's full financial year 2026 (FY2026) core net profit (CNP) estimate by two per cent.

"Our FY2027-2028 CNP forecasts are largely unchanged. While the immediate impact on CNP is small and our DCF-based TP is unchanged, investors may be concerned that TNB may have to bear more costs if fuel prices stay elevated beyond 2026, and the government continues its expanded AFA exemption initiative.

"If TNB must absorb more subsidies beyond 2026, we fear such developments risk eroding investor confidence in the predictability of TNB’s regulated returns under the Incentive Based Regulation framework,” it said. — Bernama