• 1Q19 core profit rose 9% yoy as TB4 posted higher availability factor and dispatch rate while lower net interest cost also helped but these were partly offset by higher tax and weaker associate.
• Core profit fell 34% qoq on the back of lower capacity payment for gas-fired power plants compounded by higher opex, tax, MI charge off while associate halved as KEV swung into the red.
• Overall, we view 1Q19 performance as encouraging and exceeded estimates (ours at 33%, consensus at 27%). No change to forecasts as we expect a moderate 2H19 on lower dispatch from gas-fired power plants with a new coal power plant coming on stream.
• HOLD with RM0.82 DCF-derived TP which excludes the Alam Flora (AF) acquisition; AF could boost TP by RM0.10, we estimate. We see limited growth catalyst in the medium term; sell on strength.

An encouraging start

1Q19 core earnings rose 9% yoy to RM67m as TB4 clocked in higher availability factor and dispatch rate. Net finance costs also came in lower and aided growth. However, these were offset by higher effective tax rate and lower associate contribution as KEV swung into losses.

Though qoq performance was muted

On sequential basis, core earnings fell 34% amidst higher opex, minority charge off and effective tax rate while associate contribution was also lower as KEV swung into losses. During the quarter, capacity payment for the gas-fired power plants also came in lower as the PPA extension for PD Power comes to an end on 1 Mar 2019.

TB4’s stable performance is encouraging

We note that TB4’s performance in 1Q19 was stable as observed in the Daily Logsheet report by the Grid System Operator for Jan and Feb 2019 (Mar 2019 data was not disclosed) and confirmed by management for the performance in Mar. The plant clocked its highest capacity payment since 4Q16 (Table 2). While this could signal the worst is over, its UOR limit would only be reset in 2020/21F.

No changes to estimate; expect weaker 2H19

Despite the encouraging 1Q19 performance, our forecasts remain unchanged and has yet to factor in the Alam Flora (AF) acquisition. We expect 2H19 to be moderate as the commissioning of Jimah East U1, by mid Jun 2019, would see lower dispatch rate for the gas-fired power plants. We also see limited accretion from AF acquisition.

Maintain HOLD with RM0.82 TP

Maintain HOLD with an unchanged RM0.82 TP. AF could add RM0.10 to our TP, we estimate. Despite continued stability at TB4 is encouraging, outage risk is inherent, at least, up to the resetting of its UOR threshold in 2020/21F. We also see limited catalyst in the medium term.

Source: BIMB Securities Research - 28 May 2019