Tenaga Nasional Berhad - Higher Demand Growth

Date: 29/05/2019

Source  :  PUBLIC BANK
Stock  :  TENAGA       Price Target  :  14.12      |      Price Call  :  TRADING BUY
        Last Price  :  13.70      |      Upside/Downside  :  +0.42 (3.07%)

Tenaga Nasional (TNB) reported a 27% YoY declined in net profit for 1QFY19 to RM1.56bn. Excluding a forex gain of RM207.5m, impairment on associates’ investment of GMR and financial guarantee for GAMA Enerji of RM198.3m and RM135.7m respectively, its 1QFY19 core net profit was RM1.7bn (-17% YoY), accounting for 31% and 30% of ours and consensus’ full-year estimates respectively. We deem the results to be in-line with expectations as TNB expects a full year charge of c.RM300m relating to MFRS16 in FY19. Lower YoY net profit was mainly due to higher effective tax rate as Reinvestment Allowance Incentive was no longer available in FY19 as well as higher net loss on impairment of financial instruments amounting to RM278m. Electricity demand growth jump by 5.2% YoY in 1Q19, with new peak demand was recorded on 19 March 2019. At current market price, TNB has a dividend yield of 5.6%. We maintain our Trading Buy call on TNB with an unchanged TP of RM14.12.

  • Revenue (+8% YoY, +6% QoQ). TNB reported an increase in revenue to RM13.2bn in 1Q19 owing to; (1) higher electricity demand in all sectors, and (2) higher imbalance-cost-pass-through (ICPT) of RM1.4bn due to increase in fuel costs and consumption. This was however partially offset by other regulatory adjustment of RM523.9m from; (1) excess revenue collected in 1Q19 as stipulated by the Incentive Based Regulation (IBR) guidelines in 2nd Regulatory Period (RP2), (2) one-off financing benefits of RM51m from the unspent capital expenditures in RP1, and (3) one-off net penalty of RM129.2m on higher operating expenditures spent in RP1. Electricity demand growth jump by 5.2% YoY in 1Q19, with new peak demand was recorded at 18,402MW on 19 March 2019. This exceeds Malaysia’s GDP growth of 4.5% in 1Q19. Total units sold for Peninsular during the quarter was at 28,471.1 GWh which was driven mainly by higher demand by all sectors (Chart 1 & 2).
  • Operating expenses (+9% YoY, -12% QoQ). For 1Q19, total operating expenses increased to RM10.7bn mainly due to (1) higher energy payment to independent power producers (IPPs) to RM3.5bn owing to higher fuel price and consumption, and (2) impairment on associate investment of GMR amounting to RM198.3m. However, this was offset by (1) net positive impact from MFRS16 adjustments between capacity payment and depreciation, and (2) lower staff cost owing to reversal of previous year’s provision on Long Term Investment Plan (LTIP) of RM221m. Fuel costs increased by 21% YoY due to higher fuel price and consumption. Coal and gas price were averaging higher at RM375/MT and RM27.20/mmbtu in 1Q19, compared to RM362/MT and RM24.20/mmbtu in 1Q18 respectively. Meanwhile, electricity generation mix also showing higher gas and coal generation in 1Q19 at 41.9% and 54.6% respectively which led to higher fuel consumption.
  • Core net profit (-17% YoY, +148% QoQ). TNB reported higher taxation (+97% YoY) in 1Q19 as Reinvestment Allowance Incentive was no longer available in FY19, with effective tax rate normalised to 25% in 1Q19 (vs 11% in 1Q18). Meanwhile, lower loss in share of associates of RM6.1m in 1Q19, (compared to RM77m in 1Q18) was mainly due to full impairment already provided for GAMA Enerji in 4Q18, owing to weakening of Lira against USD. Overall, its core net profit declined by 17% YoY to RM1.7bn.

Source: PublicInvest Research - 29 May 2019

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