Results

• Inline - Reported strong 4Q15 core earnings at RM2.0bn, and FY15 earnings at RM7.0bn, achieving 105.0% of HLIB’s forecasted RM6.6bn and consensus RM6.5bn.

Deviations

• None.

Dividends

• Proposed 19 sen final net dividend. Dividend for FY15 will be 29 sen (same as FY14), below our expectation of 35 sen. We reckon that TNB may want to reserve cash to finance its bidding for 1MDB-EDRA Energy assets.

Highlights

• Adjusted a lump-sum of RM1.85bn cost over-recovery for the period Jan 2014-May 2015 for FY08/15. Breakdown of of ICPT adjustments for the period:-
• 

• In Oct, LNG price has been further lowered to RM31.7/mmbtu from Jul’s RM36.7/mmtbu (vs. historical RM45-46/mmtbu and IBR benchmark RM41.68/mmbtu) due to lower crude oil price. Given the low LNG price, we expect continued tariff rebates under ICPT in 2016.

• The hike in piped gas price to RM18.70/mmbtu in 2H15 will be offset by the savings from first generation PPAs extension.

• On the other hand, we expect limited downside in coal cost relative to 4Q15, given the drop in coal cost is being offset by the appreciated US$ against RM.

Risks

• Disruption in gas supply.
• Government delay tariff revision.
• Indonesia implements tax on coal export.
• Acquistion of 1MDB-EDRA assets at high valuation.

Forecasts

• We have adjusted FY16-17 earnings lower by 2.6% and 4.9% respectively, after imputing lower electricity sales at 3.0% (from 3.8%). We introduce FY18 earnings at RM7.6bn.

Rating

BUY

Positives

• 1) Implementation of IBR and FCPT mechanism which eliminates uncertainties about future earnings; and 2) Earnings neutral from the higher LNG and gas charges.

Negatives

• 1) Unscheduled breakdown of power plants.

Valuation

• Maintain BUY with lower TP: RM15.80 (from RM17.00) based on DCFE, after earnings adjustment. Near term negative sentiment on the acquisition of 1MDB-EDRA assets will continue pressure TNB’s share price performance.
• 

Source: Hong Leong Investment Bank Research - 30 Oct 2015