TENAGA (5347) : Tenaga Nasional - Positive 4Q14 results
Target RM13.62 (Stock Rating: HOLD)
Tenaga's FY8/14 core net profit of RM4.7bn was in line with expectations, at 103% and 101% of our and consensus FY14 estimates, respectively. We expected Tenaga to post positive net profit growth in FY14, given that less LNG was burned in 4Q14 and there was gradual recovery in the IPP coal power plants. We lower FY15-16 EPS by 1.0-1.1% after we updated our FY14 numbers and introduce our FY17 estimates. Our target price is raised to RM13.62, as we roll over to 12.8x FY16 P/E (still at 20% discount to the market P/E). We maintain our Hold call on Tenaga as there is lack of clarity on the fuel cost pass-through (FCPT) mechanism.
FY14 results review
Tenaga's FY14 revenue increased 15.2% yoy on the back of the 2.5% increase in volume of electricity sold. Despite the slower volume growth in FY14 (FY13: 3.8% yoy), FY14 revenue was strong, thanks to the tariff hike that was implemented at the beginning of FY15. The lower electricity volume growth was due to the decline in usage by the electronics (-3.0% yoy), iron and steel (-13.1% yoy) sectors. Tenaga's FY14 opex increased 13.9% yoy due to higher fuel costs. Overall generation costs increased by 17.5% yoy as a result of higher LNG usage. After stripping out the forex gains, one-off writebacks from Liberty Power Ltd (LPL) and tax reinvestment allowances, Tenaga's FY14 core net profit was RM4.7bn. Tenaga declared final DPS of 19 sen, bringing total FY14 DPS to 29 sen. This translates into FY14 dividend payout ratio of 58.3% [of free cash flow (FCF)], in line with the company’s official dividend payout ratio policy (40-60% of annual FCF).
Conference call highlights
From the conference call hosted by management, we gathered that: 1) there were no updates on the FCPT for Tenaga, and 2) coal utilisation is expected to improve in FY15.
Maintain Hold
Despite the positive set of FY14 results, we think that Tenaga's current valuation is expensive, considering the uncertain fuel cost outlook. While Tenaga’s FY15 earnings outlook is expected to remain stable due to the current low cost of coal, we believe that the risk of earnings uncertainty would only be addressed by the FCPT mechanism.
Source: CIMB Daybreak - 03 November 2014
Target RM13.62 (Stock Rating: HOLD)
Tenaga's FY8/14 core net profit of RM4.7bn was in line with expectations, at 103% and 101% of our and consensus FY14 estimates, respectively. We expected Tenaga to post positive net profit growth in FY14, given that less LNG was burned in 4Q14 and there was gradual recovery in the IPP coal power plants. We lower FY15-16 EPS by 1.0-1.1% after we updated our FY14 numbers and introduce our FY17 estimates. Our target price is raised to RM13.62, as we roll over to 12.8x FY16 P/E (still at 20% discount to the market P/E). We maintain our Hold call on Tenaga as there is lack of clarity on the fuel cost pass-through (FCPT) mechanism.
FY14 results review
Tenaga's FY14 revenue increased 15.2% yoy on the back of the 2.5% increase in volume of electricity sold. Despite the slower volume growth in FY14 (FY13: 3.8% yoy), FY14 revenue was strong, thanks to the tariff hike that was implemented at the beginning of FY15. The lower electricity volume growth was due to the decline in usage by the electronics (-3.0% yoy), iron and steel (-13.1% yoy) sectors. Tenaga's FY14 opex increased 13.9% yoy due to higher fuel costs. Overall generation costs increased by 17.5% yoy as a result of higher LNG usage. After stripping out the forex gains, one-off writebacks from Liberty Power Ltd (LPL) and tax reinvestment allowances, Tenaga's FY14 core net profit was RM4.7bn. Tenaga declared final DPS of 19 sen, bringing total FY14 DPS to 29 sen. This translates into FY14 dividend payout ratio of 58.3% [of free cash flow (FCF)], in line with the company’s official dividend payout ratio policy (40-60% of annual FCF).
Conference call highlights
From the conference call hosted by management, we gathered that: 1) there were no updates on the FCPT for Tenaga, and 2) coal utilisation is expected to improve in FY15.
Maintain Hold
Despite the positive set of FY14 results, we think that Tenaga's current valuation is expensive, considering the uncertain fuel cost outlook. While Tenaga’s FY15 earnings outlook is expected to remain stable due to the current low cost of coal, we believe that the risk of earnings uncertainty would only be addressed by the FCPT mechanism.
Source: CIMB Daybreak - 03 November 2014
