Tenaga’s 2QFY21 core PATMI RM1.2bn (-16.3% QoQ; +42.0% YoY), uplifted 1HFY21 core PATMI to RM 2.7bn, in line with HLIB expectation (55.4%) and consensus (56.3%). Tenaga is expected to leverage on the expected power demand growth in tandem with economic recovery under NRP as government starts relaxing the movement control and implement stimulus plans. We maintain our BUY recommendation on Tenaga with unchanged DCFE-derived TP of RM12.50.

Within expectation. Tenaga’s reported a strong 2QFY21 core PATMI at RM1.2bn (-16.3% QoQ; +42.0% YoY), which uplifted 1HFY21 core PATMI to RM2.7bn (+41.9% YoY). We deem the result within our expectation (55.4%) and consensus (56.3%). The group recognised the following EIs in 1HFY21: forex translation gain of RM116.7m, and net provisions and impairments (including allowance for doubtful debt) of RM1bn.

Dividend. Declared 1st Interim Dividend 22 Sen (ex-date: to be Announced on a Later Date).

QoQ. Core earnings dropped 16.3% to RM1.2bn mainly due to reversal of accrued revenue, higher recognised regulatory cost adjustment and higher operational expenses during the quarter, as power sector is classified under essential services.

YoY/YTD. Core earnings jumped 42.0% YoY and 41.9% YTD, due to higher demand for electricity, new contribution from the commencement of Southern Power Generation, higher power generation from TNB owned hydropower plants, combined with power outages in some of TNB’s own power generation plants in SPLY.

RE commitment. Management remains committed towards 35% reduction of our emissions intensity by 2035 and to achieve net zero emissions by 2050. Tenaga continues to invest into RE initiatives both domestically and internationally. The group will not be investing/take up stakes in new coal power plants. Management is targeting RM5bn EBIT contribution from “future new generation sources”.

Outlook. We expect power demand to grow in tandem with the recovery of Malaysia’s economy activities as we transition through the National Recovery Plan (NRP). Tenaga will also continue to explore new RE business opportunity in the Southeast Asia region (especially in Singapore and Vietnam) and United Kingdom as part of its long term ambition to reach carbon neutrality by 2050.

Forecast. Unchanged.

Maintain BUY, TP: RM12.50. We maintain BUY on Tenaga with unchanged DCFEderived 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 - 27 Aug 2021