Results

• Within expectations - Reported 4MFY12/17 core earnings at RM2.6bn, which is 105.5% of HLIB’s 4MFY12/17 estimate.

Deviations

• None.

Dividends

• Proposed final single tier dividend of 21.41sen/share (1.7% dividend yield for 4M reporting period), in line with HLIB’s expected 20sen/share. The dividend represents a 44% payout of reported net profit for the period.

Highlights

• 4MFY12/17: Excluding EI losses (RM210m) and forex translation gain (RM329.7m), 4QFY12/17 core earnings was stable at RM2.6bn vs. HLIB’s forecasted RM2.5bn. The result has already taken into account of the cost over recovery of RM50.4m under ICPT mechanism.

• Comments: TNB revealed that return for regulated Transmission & Distribution segment (T&D) was c. RM1,223.5m during the 4M period, 44% of the reported PATAMI.

• TNB’s earning are expected to remain stable under IBR and ICPT mechanisms, which ensures stable earnings and cashflow for TNB’s regulated transmission and distribution segment, while domestic power generation segment is protected under the PPA system. Hence, dividend is expected to be stable in the coming years.

• Earnings growth can be expected with the maturing of newly acquired oversea assets (GAMA, GMR and Vortex) and commencement of Jimah East and SIPP by 2020.

• Management reiterated TNB’s long term aspiration to achieve EBIT of RM20bn by 2025 from current RM10bn, by improving the utilization and efficiency of its current asset, securing new power generation contracts and acquiring new oversea ventures.

Risks

• Disruption in energy fuel supply.

• IBR-ICPT suspension.

• Unscheduled power plant shutdown.

Forecasts

• Unchanged.

Rating

BUY ↔

• TNB’s earnings and cash flow are expected to be stable with the implementation of the IBR/FCPT mechanisms. The lowered 7.3% of regulated assets under RP2 (2018-2020) will be offset by higher asset base, new contributions from associates and power plants.

Valuation

• Maintain BUY with unhanged TP of RM17.50 based on DCFE. We remain positive on TNB’s earnings long term growth and strong cash flow under RP2.

Source: Hong Leong Investment Bank Research - 1 Mar 2018