Stock Name: TENAGA
Company Name: TENAGA NASIONAL BHD
Research House: CIMB
Tenaga Nasional Bhd
(April 21, RM8.39)
Maintain neutral at RM8.50 with higher target price of RM9.45: As previewed, Tenaga's 1HFY8/10 core net profit beat expectations - annualised core net profit came in 22% ahead of our forecast due to stronger-than-expected demand.
The six sen gross interim dividend per share (DPS) was below our 8-9 sen expectations but higher than last year's 4.7 sen. We continue to expect a margin squeeze in 2H from higher coal costs.
However, we raise our power demand growth forecast for FY10 from 4.8% to 8% and lift FY11's growth from 3% to 4.5%, closer to our CY11 GDP forecast of 5.5%. This increases our FY10-FY12 core earnings per share (EPS) by 7%-11%.
Despite the disappointing interim DPS, we are retaining our FY10-FY12 DPS projections as we expect a stronger final payout. Tenaga remains committed to its 40%-60% free cash flow policy. Its RM5.4 billion cash balance should also help.
Post earnings upgrade, our end-CY10 target price rises from RM9.15 to RM9.45, based on an unchanged price-book value (P/BV) of 1.4 times. Tenaga remains a neutral as fuel-related risks could surface in FY11 in the absence of a transparent pass-through formula.
We also see uncertainty over the next tariff review and Tenaga's plans to source hydropower from Sarawak.
Its topline rose 3% year-on-year (y-o-y), lifted by the 8% y-o-y uptick in Peninsular Malaysia's electricity sales. This more than offset March 2009's 3.7% tariff cut and weaker earnings from EGAT and Liberty Power.
Tenaga revealed an 11.7% y-o-y rise in March 2010's sales, which helped push overall power demand in the first seven months 8.5% higher y-o-y, well ahead of our 4.8% projection for the full year.
Tenaga's earnings before interest and tax (Ebit) uptick was more pronounced (+29% y-o-y), thanks to coal-related savings, which more than offset the 10% increase in non-fuel costs. Its average coal costs settled at US$81/tonne (RM258) at the mid-year mark, 20% below 1HFY09's US$101.
But margin squeeze lies ahead. We expect a heavier cost structure in the coming two quarters, particularly from coal. - CIMB Research, April 21
This article appeared in The Edge Financial Daily, April 16, 2010.
Company Name: TENAGA NASIONAL BHD
Research House: CIMB
Tenaga Nasional Bhd
(April 21, RM8.39)
Maintain neutral at RM8.50 with higher target price of RM9.45: As previewed, Tenaga's 1HFY8/10 core net profit beat expectations - annualised core net profit came in 22% ahead of our forecast due to stronger-than-expected demand.
The six sen gross interim dividend per share (DPS) was below our 8-9 sen expectations but higher than last year's 4.7 sen. We continue to expect a margin squeeze in 2H from higher coal costs.
However, we raise our power demand growth forecast for FY10 from 4.8% to 8% and lift FY11's growth from 3% to 4.5%, closer to our CY11 GDP forecast of 5.5%. This increases our FY10-FY12 core earnings per share (EPS) by 7%-11%.
Despite the disappointing interim DPS, we are retaining our FY10-FY12 DPS projections as we expect a stronger final payout. Tenaga remains committed to its 40%-60% free cash flow policy. Its RM5.4 billion cash balance should also help.
Post earnings upgrade, our end-CY10 target price rises from RM9.15 to RM9.45, based on an unchanged price-book value (P/BV) of 1.4 times. Tenaga remains a neutral as fuel-related risks could surface in FY11 in the absence of a transparent pass-through formula.
We also see uncertainty over the next tariff review and Tenaga's plans to source hydropower from Sarawak.
Its topline rose 3% year-on-year (y-o-y), lifted by the 8% y-o-y uptick in Peninsular Malaysia's electricity sales. This more than offset March 2009's 3.7% tariff cut and weaker earnings from EGAT and Liberty Power.
Tenaga revealed an 11.7% y-o-y rise in March 2010's sales, which helped push overall power demand in the first seven months 8.5% higher y-o-y, well ahead of our 4.8% projection for the full year.
Tenaga's earnings before interest and tax (Ebit) uptick was more pronounced (+29% y-o-y), thanks to coal-related savings, which more than offset the 10% increase in non-fuel costs. Its average coal costs settled at US$81/tonne (RM258) at the mid-year mark, 20% below 1HFY09's US$101.
But margin squeeze lies ahead. We expect a heavier cost structure in the coming two quarters, particularly from coal. - CIMB Research, April 21
This article appeared in The Edge Financial Daily, April 16, 2010.
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