• Overview. 3Q19 core profit came in flat qoq and surged 69% yoy on combination of lower effective tax rate and interest expense as well as stronger associate which more than offset the decline in energy payment as all 3 of TBP generation units were on scheduled outage.

• Key highlights. Energy payment came in lower yoy (Table 2) due to TBP’s outage but was partially offset by higher despatch at TBE. Associate improved on lower losses at KEV as a result of decline in O&M costs; despite the recent 12% stake purchase from Khazanah, the assets for Shuaibah was weaker in 3Q19 due to plant outages.

• Against estimates: below. 9M19 core earnings rose 10% on lower effective tax rate (mainly in 3Q19) due to overprovision on interest income as well as a more stable TBE performance. Still, it trailed both ours and consensus estimates at 70% and 68%.

• Outlook. We expect some earnings respite in 4Q19 as TBP resumes operation and contribution from Shuaibah recovers. Management also noted that TBE/TB4’s UOR now stands at 3% leading to stable capacity and energy payments going forward. It further adds that the Alam Flora purchase is on track for completion in 1Q20.

• Our call. Downgrade to HOLD with unchanged RM0.97 DCF-derived TP; its share price rose by over 7% after announcing the MacArthur Wind Farm disposal. This strengthens its balance sheet while yields at current levels are attractive at over 5.5%. Buy on dips.

Source: BIMB Securities Research - 21 Nov 2019