Stock Name: TENAGA
Company Name: TENAGA NASIONAL BHD
Company Name: TENAGA NASIONAL BHD
| Research House: OSK | Price Call: BUY | Target Price: 7.68 |
TNB's 1HFY12 profits were inflated by the RM2bn compensationfor additional fuel costs arising from the gas supply shortage. Stripping outthis amount and forex gains, its core operating profit still came in within ourestimates. As gas supply has normalized, we expect TNB's profits to bounce backto levels last seen in early 2010. For FY13, a combination of contained coalcosts, potentially lower capacity payments and strong demand growth could seeTNB post its 2nd highest core net profit ever. Despite successionconcerns, we believe the new CEO has breathing room to familiarize himself withTNB given that it is a GLC.
Within forecasts.TNB's 2QFY12 results are a little harder to analyze as they included RM1,517min net compensation from the Government and Petronas (RM2.023bn less RM506m intax) as part of the fuel cost sharing compensation up to Oct 2011. We choose to not recognize theRM1,517m as a core profit item, although we acknowledge that this discriminatesagainst TNB. The resultant core net profit of RM867.4m is deemed within ourforecasts and consensus. Do note that our forecasts for RM2.5bn implies a net profit of RM816m per quarter for the remaining 2quarters of FY12 vs a core net profit of RM672m in 2Q. We deem this as a slightly stretched but achievable forecast. Havingreceived the compensation amount, TNB's book value per share has risen back to a comfortable RM6.41.
Looking ahead.TNB's management touched upon the following concerns:
- Succession ' The names of the candidates for CEO have beensubmitted to the Government while an executive search firm has been appointedto look for a new CFO
- Gas supply ' Since Jan 2012, gas from Petronas has hoveredat around 1100 mmscfd, which meant that TNB required minimal oil &distillates
- 25% Coal export tax 'Management feels that the tax could be delayed or cancelled given the strong lobbying from Indonesian coal miners and excess coal from SouthAfrica
- PPA renegotiations ' Tenders have been called but managementfeels that it is unlikely to lead to a significant reduction in capacitypayments
- Demand growth 'Surprisingly strong at 4.9% y-o-y from Sept 2011 to March 2012. Management hasguided for 4%, which may potentially be exceeded
Maintain forecasts and fair value. We are revising upwards our demand growth forecasts butalso tweaking down our tariff assumptions, which were previously on the bullishside. The net effect is our FY12 forecasts remain largely unchanged but the FY13 and FY14 net profit forecasts arerevised up by 3.2%. Our RM7.68 DCF based fair value implies a PER of 14x onFY13 numbers, a slight stretch over TNB's historical 13.5x PER, but isjustified given a potential rerating post general election.
Source: OSK188
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