Tenaga’s 1QFY21 core PATMI of RM1.5bn (+5.7% QoQ; +48.4% YoY), was inline with HLIB expectation (30.2%) and consensus (30.6%). Tenaga’s major earnings stream remains intact under IBR structure. Management expects power demand growth as Malaysia enjoys economy recovery of 6.0-7.5% in 2021 (HLIB forecast: 5.0%). We maintain our BUY recommendation on Tenaga with unchanged DCFE-derived TP of RM12.50.

Within expectation. Tenaga’s reported a strong 1QFY21 core PATMI at RM1.5bn (+8.6% QoQ; +41.7% YoY). We deem the result within our expectation (30.2%) and consensus (30.6%). The group recognised the following EIs: forex translation gain of RM56.8m, and net provisions and impairments of RM511.0m.

Dividend. None.

QoQ. Core earnings increased 8.6% to RM1.5bn mainly due to higher generation from TNB owned hydropower plant and lower total payments to IPPs (mainly energy payments) along with lower repair and maintenance costs during the quarter.

YoY. Core earnings jumped 41.7% due to new contribution from the commencement of Southern Power Generation and higher power generation from TNB owned hydropower plants in the current quarter, combined with power outages in some of TNB’s own power generation plants in SPLY.

Recovery in 2021. Management expects further recovery in power demand along with the projected economic recovery of 6.0-7.5% in 2021 (HLIB forecast: 5.0%), underpinned by the various stimulus plans implementation and commencement of national vaccination program. Unlike MCO1.0, most economic sectors are allowed to operate under current MCO3.0 rulings.

Capex under RP3. Tenaga has proposed a higher capex allocation for energy transition projects under RP3 (2022-2024), in anticipation of MESI 2.0. Major projects include Advanced Metering Infrastructure, Advanced Distribution Management System, LED Relamping and Volt-Voltage Optimisation.

Forecast. Post updates from Annual Report, we adjusted FY21-22 earnings by +0.6% and -3.6% respectively. We introduce FY23 earnings at RM5.2bn.

Maintain BUY, TP: RM12.50. We maintain BUY on Tenaga with unchanged DCFE derived TP: RM12.50, given stable cash-flow and dividend payout. Tenaga’s earnings are expected to rebound in FY21.

Source: Hong Leong Investment Bank Research - 28 May 2021