Tenaga 4Q18 Results Operationally Inline – Outperform Maintained

Date: 01/03/2019

Stock  :  TENAGA       Price Target  :  15.80      |      Price Call  :  BUY
        Last Price  :  13.76      |      Upside/Downside  :  +2.04 (14.83%)

Tenaga Nasional (Tenaga) ended the financial year (FY18) with a net loss of RM151.6mil in its fourth quarter (4Q18). Macquarie Equities Research (MQ Research) released a report yesterday evening (28 Feb), stating that the 4Q18 results were largely inline operationally, with FY18 core profit of RM5.4bil representing 98% of MQ Research’s estimates. MQ Research maintains Outperform on Tenaga, with target price of RM15.80.


  • Tenaga reported 4Q18 results which were largely inline operationally. As expected, adjustments were made in 4Q18 results to account for the new rules under Regulatory Period 2 (RP2), which rules were only published in December 2018. Excluding these and further provisions taken for associates, Tenaga’s core profit of RM5.4bn represented 98% of MQ Research’s estimates. A final dividend of 23sen/share, however, was below MQ Research’s 30sen/share estimate.
  • MQ Research maintains their view that the improved regulatory environment coupled with further efforts to return cash to shareholders will be the key drivers of a rerating of Tenaga’s shares which trade at an attractive 12.8x 19E core price-earnings ratio (PER).


  • Operationally inline. Tenaga’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of RM14.67bn represented 99% of MQ Research’s estimates. Demand growth of 2.6% year-on- year (YoY) was marginally behind MQ Research’s 2.8% estimates as industrial demand growth slowed to 3.6% YoY – nonetheless a healthy pace. Underlying costs were generally well under control and within expectations.
  • Impairments and adjustments taken. Tenaga adjusted revenues by RM640m to account for the change in revenue recognition under RP2. MQ Research’s numbers have already factored in these changes. This was flagged in December when the tariff adjustment for 1H19 was announced. Additionally, Tenaga took impairment changes of 1) RM305m for its investment in GMR Energy and 2) RM270m related to a financial guarantee made to Gama (Turkey).
  • Broadband – still under evaluation. Management clarified that they are still evaluating the financials for the broadband business and would revert with details once the board has deliberated on the matter. Management did clarify that Tenaga is looking at this venture from a wholesale basis rather than to enter the retail market and compete with existing players.
  • Dividends – still room to increase. While the 53sen/share total dividend for 2018 represented a 56% payout ratio (policy to pay out 40-60%) of normalised profit after tax and minority interest (PATAMI), MQ Research had expected management to at the very least keep to the 60sen/share paid out in respect of FY08/17. With capex set to reduce as major plant up programmes come to an end, and underlying earnings stable, MQ Research sees increasing room for capital management to come to the fore at Tenaga.
  • Overseas expansion more targeted. During the conference call, management clarified that Tenaga will continue to look for opportunities in the renewables space in developed markets but would look to consolidate its position in existing emerging markets until such point that they can show positive outcomes. This should go down well with the market in MQ Research’s view.

Action and Recommendation

  •             Outperform maintained.

12-month Target Price Methodology

  • RM15.80 based on a PER methodology

Source: Macquarie Research - 1 Mar 2019

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