Journey to Wealth
Tenaga Nasional - 9M12 above expectations
Period 9M12
Actual vs. Expectations 9M12 core earnings of RM2.59b (incl. compensations for the year) was above expectations, making up 95% of the street's FY12E core net profit of RM2.74b and 97% of our RM2.68b (refer overleaf). There was an increased in coal generation, whose unit cost is c.70% cheaper than MFO/diesel. Coal price was also lower at USD107.5/mT vs. FY12E USD110/mT.
Dividends None as expected.
Key Results Highlights YoY, 9M12 core earnings (incl. compensations) rose by 58% mainly due to the reasons mentioned above. Although 3Q12 gas supply remains weak at c.950mmscfd, it averaged at c.1000mmscfd for 9M12, which was an improvement from last year's 850-950mmscfd range. 9M12 recorded a RM334m FOREX loss because of the weaker Ringgit against USD/JPY.
3Q12 core net profit rose 19% QoQ to RM1.06b (incl. compensations for the quarter) as there was an increase usage of cheaper fuels (coal, hydro, etc.), which helped to offset the lower gas supply during the quarter.
Outlook Tenaga is still guiding Peninsula demand growth of 4%-5% vs. 10M12's 4.2%. However, we are maintaining our FY12E estimate at 4.5%. Coal cost is expected to average at USD103/mT over FY12E but is expected to dip below USD100/mT in FY13E.
Management reiterates that although Melaka RGT gas supply will be at market price, the government will ensure it is neutral on Tenaga.
Change to Forecasts We have increased FY12-13E core earnings (now including compensations) by 20%-12% to RM3.20b-RN3.33b due to lower coal price assumptions and cost-friendlier generation mix (refer to assumptions table for details). Note that we have not imputed in 4Q12 compensations.
Rating Maintain OUTPERFORM
Limited downside risk with government's assurance that fuel cost compensations will continue until PEMANDU's subsidy rationalisation plan is in place. Catalyst will be the upcoming tariff review in Dec-12, depending on GE timing.
Valuation Increased TP to RM7.90 (previously RM7.50) based on 13x Fwd PER and fully rolled over to FY13E core EPS (refer overleaf for details).
Risks Risk lies with government's government's ability to continue compensation before tariff fuel cost pass-through kicks in.
Source: Kenanga
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