Tenaga’s 3QFY21 core PATMI RM1.5bn (+19.6% QoQ; +14.9% YoY), uplifted 9MFY21 core PATMI to RM4.2bn, above HLIB expectation (85.8%) and consensus (88.5%). The strong 9MFY21 result was mainly attributed to higher than expected power generation from Tenaga own power plants. Tenaga is expected to leverage on the expected power demand growth in tandem with economic recovery under NRP as the government relaxes restrictions and implements its stimulus plans. We maintain our BUY recommendation on Tenaga with higher DCFE-derived TP: RM13.60 (from RM12.50) post earning adjustments.

Above expectation. Tenaga continued to report a strong 3QFY21 core PATMI at RM1.5bn (+19.6% QoQ; +14.9% YoY), which uplifted 9MFY21 core PATMI to RM4.2bn (+31.0% YoY). We deem the result above our expectation (85.8%) and consensus (88.5%), mainly due to higher than expected power generation from Tenaga owned power plants. The group recognised the following EIs in 9MFY21: forex translation gain of RM162.4m, and net provisions and impairments (including allowance for doubtful debt) of RM1.3bn.

Dividend. None.

QoQ/YoY. Core earnings improved 19.6% QoQ and 14.9% YoY to RM1.5bn mainly due lower company tax charges on higher utilization of Reinvestment Allowances during the quarter.

YTD. Core earnings jumped 31.0% YTD to RM4.2bn, due to combination of: 1) higher electricity sales; 2) lower Tenaga sales discount and contribution for Covid-19; 3) higher revenue from good and services; 4) higher net ICPT surcharge and coal price adjustments; and 5) higher associate contributions.

RE commitment. Management remains committed towards 35% reduction of emissions intensity by 2035 and to achieve net zero emissions by 2050. Tenaga has established a New Energy Division, which is tasked to relook its international business portfolio including divestment of India and Pakistan power plants and expansion of RE in Europe and ASEAN market. Recently, Tenaga has also acquired 49% stake in Blyth offshore UK wind farm, which has 41.5MW capacity and further development rights of up to 58.4MW. The group is also finalising acquisition of 39% stake in 21.6MW rooftop solar project in Vietnam by end 2021.

Outlook. Power demand growth remains healthy at expected +2.9% YoY for 2021 in tandem with the recovery of Malaysia’s economy activities as we transition to Phase 4 of the National Recovery Plan (NRP). Tenaga will leverage onto the growth of EV market, anticipating 500k EVs and 18k charging points by 2030.

Forecast. We raised our forecasts by 5.6%, 4.4% and 2.5% for FY21-23 respectively.

Maintain BUY, TP: RM13.60. We maintain BUY on Tenaga with higher DCFE-derived TP: RM13.60 (from RM12.50), given stable cash-flow and dividend payout. Tenaga’s earnings are expected to sustain its earnings in FY22-23.

Source: Hong Leong Investment Bank Research - 26 Nov 2021