Period

3Q15/9M15

Actual vs. Expectations

At 82%/85% of our/street’s full-year FY15 estimates, the 9M15 net profit of RM346.2m beat expectations. On our side, the key deviation was our higher interest expense forecast of RM897.0m for FY15 vs. the actual RM602.8m recorded in 9M15.

Dividends

2.0 sen interim NDPS was declared in 3Q15 (exdate: 07 Dec; payment date: 28 Dec), totalling YTD NDPS to 5.0 sen vs. our FY15E estimate of 5.9 sen.

Key Results Highlights

3Q15 net profit surged 81% QoQ to RM156.0m from RM86.3m despite revenue dipping 1% in 2Q15. This was mainly due to: (i) associate income turning profitable from losses as the share of losses from 40%-owned Kapar Energy Venture Plant (KEV) was reduced, (ii) lower interest expense by RM16m or 8% following the full redemption of RM1.8b Junior Sukuk Musharakah, and (iii) lower taxation by 50% or RM29.9m partly due to RM14m one-off write-back on PD Power loan stock. The lower revenue was mainly attributable to lower availability factor for both Prai and Tanjung Bin plants due to outages. However, there is no impact to bottomline as the former is covered by insurance while the latter was a scheduled maintenance.

Despite revenue falling 9%, 3Q15 earnings soared 44% YoY from RM108.1m, which was attributable to the same reasons as the QoQ comparison as mentioned above. YTD, 9M15 net profit leapt 58% to RM190.2m from RM120.7m although revenue fell 2% over the year. The improvement in bottomline was driven by higher Tanjung Bin earnings and the full accounting for PD Power’s earnings this year as it only became a 100%-owned subsidiary in April 2014 (from 25% previously)

Outlook

The operational issue at the 40%-owned associate KEV is unlikely to be resolved in the near-term; this could be an earning dampener judging from 2Q15 results.

FY15 earnings are expected to be normalised as the Tanjong Bin Plant is now back in action despite some hiccups at KEV. In addition, the T4 which will come on-stream by Mar 2016 will be an additional new earnings driver.

Change to Forecasts

We upgrade FY15-FY17 estimates and NDPS by 5.6%/3.5%/2.4% on: (i) lower interest expenses, (ii) higher interest income, and (iii) lower Macarthur Wind Farm’s earnings as the actual 9M15 results of RM45m vs. our previous FY15E assumption of RM100m.

Rating

Maintain OUTPERFORM

Valuation

New price target is now lowered slightly to RM2.19/share from RM2.21/share which is still at a 10% holding company discount to its SoP. The change in price target is mainly due to cash-flow and Macarthur Wind Farm’s earnings adjustment.

Risks to Our Call

Unexpected plant outages and prolonged losses at KEV.

Source: Kenanga Research - 24 Nov 2015