Tenaga’s 4QFY19 core PATMI of RM961.8m (-22.9% QoQ; +4.5% YoY) and FY19 of RM5.1bn (-5.8% YoY), were slightly below HLIB expectation (93.7%) and consensus (93.7%) due to outages of Janamanjung 2 and Kapar 6 power plants in 4QFY19. Declared attractive 20 sen/share final dividend and 50 sen/share special dividend, boosted full year dividend to RM1.00/share (8.3% yield). Upgrade to BUY with unchanged DCFE derived TP: RM13.50, we expect Tenaga’s earnings and cash flow to remain sustainable.

Below expectation. Tenaga’s reported 4QFY19 core PATMI at RM961.8m (-22.9% QoQ; +4.5% YoY) and FY19 at RM5.1bn (-5.8% YoY), was slight below HLIB’s expectation (93.7%) and consensus (92.0%) mainly due to outages of Janamanjung 2 and Kapar 6 power plants during 4QFY19, causing loss of income of RM300m. During 4QFY19, management incurred additional one-time costs of RM300m in relation to group re-organisation exercise, licensing fees and softwares etc.

Dividend. Declared a final dividend of 20 sen/share and a special dividend of 50 sen/share (ex-Date to be determined on a later date), boosting full year dividend to RM1.00/share (translating into attractive 8.3% dividend yield).

QoQ. Despite the commencement of Jimah East, core PATMI declined 22.9%, following the outages of Janamanjung 2 and Kapar 6 power plants in 4QFY19.

YoY. Core PATMI improved by 4.5% mainly attributed to commencement of Jimah East plants since July 2019.

YTD. Core PATMI declined by 5.8%, dragged by outages of Janamanjung 2 and Kapar 6 power plants, which was partially cushioned by minimal new contributions of Jimah East plants.

MFRS16. Implementation of MFRS 16 (finance lease) has resulted increase in net operational and finance costs of RM169.3m in 4QFY19 and RM372.0m in FY19.

Foreign investments. Turkey GAMA has signed a Non-Binding Term Sheet with GEAS and lenders for a debt restructuring program, which will improve its cash flow. India GMR is still undergoing restructuring with asset monetization exercises in order to improve its cash flow. UK Vortex and Wind Ventures remained cash flow positive, while Saudi Shoaiba is expected to remain profitable with steady stream of dividend.

Stimulus plan. Management highlighted the “Covid-19 stimulus” measures of: 1) 15% discount in monthly electricity bills to hotels, travel agencies, airlines, shopping malls, conventions and exhibitions centres, will be reimbursed by KWIE (expected RM30- 40m); and 2) accelerated Tenaga investment of RM2bn on top of existing RM11bn commitment in 2020, including accelerating projects such as LED street lights, transmission lines and rooftop solar installations, will be covered under the RAB structure. Hence, Tenaga will not be negatively impacted by the announced stimulus.

Forecast. Unchanged for FY20-21.

Upgrade to BUY, TP: RM13.50. Following the recent drop in share price, we upgrade Tenaga to BUY (from Hold) with unchanged DCFE-derived TP: RM13.50. Tenaga’s earnings are expected to be sustainable at current level with stable cash-flow and dividend payout. The group has announced an attractive total dividend of RM1.00 for FY19 (8.3% yield).

Source: Hong Leong Investment Bank Research - 9 Mar 2020