• Overview. 2Q19 core profit fell 24% qoq and 17% yoy due to lower dispatch energy payment and weaker associate contribution.

• Key highlights. Energy payment came in lower by 15% qoq and 11% yoy (Table 2) due to scheduled outage at TBE/TB4 but was partially offset by higher applicable coal price (ACP). Associate performance weakened by losses at KEV on higher outage (forced and planned).

• Against estimates: inline. 1H19 core earnings fell 4% though ahead of ours at 58% due to deviation in minority interest charge off rate estimated. Against consensus, core earnings were inline at 48%.

• Dividend. A 2.4sen first interim DPS (1H18: 2.1sen) was declared, implying 100% payout based on 1H19 headline/core earnings.

• Outlook. Our 2019F estimates look conservative but expect 2H19 to come in weaker as the gas-fired plants should see lower energy dispatched. This is in view of the first generation unit for TNB’s 70%- owned Jimah East achieving COD recently on 22 Aug 2019, adding 1,000MW of coal-fired capacity. The second unit should hit COD in Dec 2019. On the flipside, TBE/TB4’s stable output after its planned outage is encouraging and could offer some upside to our forecasts.

• Our call. Maintain HOLD with an unchanged RM0.82 DCF-derived TP. This excludes potential accretion from the potential Alam Flora acquisition which could add RM0.10 to TP, we estimate, while yields at current levels are attractive.

Source: BIMB Securities Research - 26 Aug 2019