TENAGA (5347) - Tenaga Nasional - Electrifying 1Q15 earnings
Target RM18.42 (Stock Rating: ADD)
Tenaga's 1Q15 core net profit of RM2.1bn was above our and consensus estimates, accounting for 39% and 36% of full-year forecasts, respectively. The variance was due to the lower-than-expected fuel costs and reduced tax rate. Core net profit grew by a whopping 40.7% yoy, underpinned by the higher tariff and lower fuel costs. We raise our FY15-17 earnings estimates by 15-20% after making changes to our tax rate and fuel cost assumptions. In the same vein, our target price is raised to RM18.42, based on an unchanged target P/E of 15x FY16 earnings. Our Add call is maintained. We think the strong 1Q15 results and near-term earnings outlook will catalyse the stock.
1Q15 earnings review
Tenaga's 1Q15 revenues grew by 15.2% yoy, underpinned by the tariff hike (1Q14 was before the tariff hike) and demand growth of 3.3% yoy. Fuel costs during the quarter rose by 4.1%, mainly due to an improved generation mix that favoured more coal, which accounted for 46.3% of total generation mix vs. only 39.8% in 1Q14. At the same time, the prices of coal itself have fallen as compared to the 1Q14. As a result of the better generation mix, Tenaga's EBITDA margins expanded by 8.4% pts, causing its EBITDA to jump 49.6% yoy. Profit before tax soared 62% yoy to RM2.6bn. After tax and exceptional items, which include forex gains, Tenaga's core net profit came in at RM2.1bn, higher by 40.7% yoy.
RM200m over-recovery in fuel costs
Tenaga hosted a 1Q15 conference call and briefing for over 60 analysts and fund managers to discuss its results. We were pleasantly surprised to learn that, during the quarter, Tenaga's fuel cost was over-recovered by RM200m, which could be returned to consumers through a tariff reduction in the next review in Jul 2015. Management, however, highlighted that it was up to the government to decide and, in the meantime, the RM200m would be classified together with the PPA savings.
Key highlights from conference call
Other key takeaways from the briefing: 1) PPA savings have yet to be utilised, 2) Tenaga's effective tax rate will be c.10-12% for FY15-17, and 3) it will wait and see how the offer for Integrax goes after the offer documents are sent to shareholders.
Source: CIMB Daybreak - 23 January 2015
Target RM18.42 (Stock Rating: ADD)
Tenaga's 1Q15 core net profit of RM2.1bn was above our and consensus estimates, accounting for 39% and 36% of full-year forecasts, respectively. The variance was due to the lower-than-expected fuel costs and reduced tax rate. Core net profit grew by a whopping 40.7% yoy, underpinned by the higher tariff and lower fuel costs. We raise our FY15-17 earnings estimates by 15-20% after making changes to our tax rate and fuel cost assumptions. In the same vein, our target price is raised to RM18.42, based on an unchanged target P/E of 15x FY16 earnings. Our Add call is maintained. We think the strong 1Q15 results and near-term earnings outlook will catalyse the stock.
1Q15 earnings review
Tenaga's 1Q15 revenues grew by 15.2% yoy, underpinned by the tariff hike (1Q14 was before the tariff hike) and demand growth of 3.3% yoy. Fuel costs during the quarter rose by 4.1%, mainly due to an improved generation mix that favoured more coal, which accounted for 46.3% of total generation mix vs. only 39.8% in 1Q14. At the same time, the prices of coal itself have fallen as compared to the 1Q14. As a result of the better generation mix, Tenaga's EBITDA margins expanded by 8.4% pts, causing its EBITDA to jump 49.6% yoy. Profit before tax soared 62% yoy to RM2.6bn. After tax and exceptional items, which include forex gains, Tenaga's core net profit came in at RM2.1bn, higher by 40.7% yoy.
RM200m over-recovery in fuel costs
Tenaga hosted a 1Q15 conference call and briefing for over 60 analysts and fund managers to discuss its results. We were pleasantly surprised to learn that, during the quarter, Tenaga's fuel cost was over-recovered by RM200m, which could be returned to consumers through a tariff reduction in the next review in Jul 2015. Management, however, highlighted that it was up to the government to decide and, in the meantime, the RM200m would be classified together with the PPA savings.
Key highlights from conference call
Other key takeaways from the briefing: 1) PPA savings have yet to be utilised, 2) Tenaga's effective tax rate will be c.10-12% for FY15-17, and 3) it will wait and see how the offer for Integrax goes after the offer documents are sent to shareholders.
Source: CIMB Daybreak - 23 January 2015
