Tenaga Nasional Berhad - Cushioned By Better Associates’ & Tax

Date: 03/09/2019

Source  :  PUBLIC BANK
Stock  :  TENAGA       Price Target  :  14.12      |      Price Call  :  HOLD
        Last Price  :  13.72      |      Upside/Downside  :  +0.40 (2.92%)

Tenaga Nasional (TNB) reported lower 2QFY19 net profit at RM1.1bn. Excluding a forex loss of RM279m, its 2QFY19 core net profit was RM1.4bn (-22% YoY). This brings its 1HFY19 core net profit to RM3.08bn (-19% YoY), within our and consensus’ expectations, accounting for 56% and 55% of full-year estimates respectively. The reduction in net profit was mainly due to the regulatory adjustments of RM809.5m, net negative impact from MFRS 16 of RM112.2m and higher finance costs, but partially offset by reversal of over provision of current tax for FY18. Electricity demand growth was at 3.6% YoY for 2QFY19, with new peak demand recorded on 18 April 2019 at 18,566MW. We maintain our forecasts and Neutral call on TNB with unchanged TP of RM14.12. During the quarter, TNB declare an interim single tier dividend of 30 sen per share, translating to 54.5% of adjusted Group PATAMI.

  • Higher demand growth from all sectors. TNB reported higher YoY revenue in 2Q19 at RM12.87bn (+3% YoY), with higher under-recoverability of imbalance cost-pass through (ICPT) amounting to RM425.8m due to higher unit generated and consumption from gas. This however partially offset by other regulatory adjustments of RM285.6m mainly from excess revenue collected as per Incentive Based Regulation (IBR) guidelines in 2nd Regulatory Period (RP2). Total units sold for Peninsular during the quarter was at 30,050 GWh, with new peak demand of 18,566 MW registered on 18 April 2019. For 1H19, revenue jump 5.4% YoY due to higher electricity demand from all sectors. The electricity demand growth was at 4.4% YoY, with Domestic, Commercial and Industrial demand growing by 8.7%, 3.6% and 2.4% YoY respectively (Figure 1).
  • Higher generation cost due to higher gas volume. Operating expenses rose 3.4% YoY in 2Q19 to RM10.9bn mainly due to higher energy payment (+9%) and fuel costs (13%). This was in line with higher demand growth couple with higher average daily usage of gas volume at 1,059 mmscfd in 2Q19 (vs 2Q18: 923 mmscfd). This resulted in its gas & LNG cost jumping by 18% YoY to RM2.8bn (vs 2Q18: RM2.4bn). Coal costs during the quarter declined 2% YoY to RM2.8bn, due to lower coal price at USD81.4/MT (vs 2Q18: USD91.1/MT), couple with lower coal-based generation at 55.5% (vs 2Q18: 57.8%). Its total generation cost during the quarter constituted 58% of Group’s operating expenses at RM6.3bn.
  • Earnings was cushioned by better associates’ share of profit and reversal of tax. During the quarter, TNB reported a positive share of associates’ profit of RM81.9m, compared to a loss of RM8.8 in 2Q18. This was mainly due to better performance from its Vortex Solar and turnaround of GMR Energy. Meanwhile, it also recorded a reversal of over provision of current tax for FY18 resulting in current tax falling by 66% to RM116.8m. However, this was offset by higher finance cost (+147%), partly from the new sukuk issue this year as well as MFRS16 impact. Overall, its core net profit in 2Q19 declined by 22% YoY to RM1.4bn, bringing its 1HFY19 core net profit to RM3.1bn (-19% YoY), with net negative MFRS 16 impact of RM112.2m.
  • Dividend. For 1H18, the Board has approved an interim single tier DPS of 30 sen (vs 1H18: 30.3 sen), translated to a dividend payout of 54.5% (vs 1H18: 50%). Payment date will be announced in due course.

Source: PublicInvest Research - 3 Sept 2019

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