Stock Name: TENAGA
Company Name: TENAGA NASIONAL BHD
Company Name: TENAGA NASIONAL BHD
| Research House: AMMB | Price Call: BUY | Target Price: 7.35 |
Wereiterate our BUY call on Tenaga Nasional (Tenaga), with a higher DCF-derivedfair value of RM7.35/share (vs. an earlier RM6.95/share), which implies a CY12FPE of 13x and a P/BV of 1.3x.
We haveraised Tenaga's FY13F-FY14F earnings by 4% with a slight 0.5% increase inaverage electricity price, which weconservatively expect as the net tariff arising from the cost pass-throughadjustment in tandem with the new gas price arising from the 200mmscfd supplyfrom the Malacca regassification plant in August this year. Our FY12F-FY14F earnings, which also assumethe continuation of fuel cost sharing ' arising from natural gas shortfalls 'with Petronas and the government, are 11%-30% above general consensus'estimates.
Assuming a20% premium (for added gas processing and transport costs by Petronas Gas) toJapan's LNG current import price of US$17/mmbtu from Qatar, we estimate Tenaga'sblended gas costs to rise by 50% from RM13.70/mmbtu to RM20/mmbtu.
This couldbe offset by an 11% increase in average electricity tariffs, given that gascost currently accounts for 23% of Tenaga's electricity revenue in Peninsular Malaysia.We believe that this may be palatable given the 7% hike in the last tariffreview in May last year and a 24% jump back in July 2008.
We remainpositive on Tenaga given multiple valuation kickers from:- (1) Re-pricing ofelectricity and fuel tariffs has usuallyyielded a net margin upside for Tenaga in the past. The power-gas priceadjustment in May last year provided a 2% net tariff increase. If the powertariff structure adjusts the embedded coal price of US$85/tonne currently toour assumption of US$110/tonne, net electricity prices will rise by 1.6%,translating to a 32% increase in FY13F net profit. (2) Improving gas supplyfrom an additional 70mmscfd from the Joint-Development Area with Thailand andthe Malacca regassification plant in August this year. (3) Positive policymoves by the government and Energy Commission to encourage first generationindependent power producers to accept lower capacity payments for extension oftheir power purchase agreements. We estimate that a 10% reduction in thecapacity charge of the first generation's 4,115MW could translate to an 11% increaseto Tenaga's FY13F net profit.
Since weraised our recommendation from HOLD to BUY back on 13 September last year, theshare price has risen by 20%, outperforming the FGBMKLCI by 10%. The stock stilltrades at a P/BV of 1.1x, at the lower range of 1x-2.6x over the past 5 years.Earnings-wise, Tenaga offers an attractive CY12F PE of 11x compared with thestock's three-year average band of 10x-16x.
Source: AmeSecurities
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