Period

4Q15/FY15

Actual vs. Expectations

FY15 net profit of RM453.2m came within our expectation (+2%) but beat market consensus by 7%.

Dividends

A final NDPS will be decided upon the completion of audited FY15 account, which will be in end-March. Based on minimum 70% payout policy, it needs at least 1.35 sen to meet the requirement which will bring full-year NDPS to 6.35 sen, slightly higher than our assumption of 6.2 sen.

Key Results Highlights

4Q15 net profit declined 31% QoQ to RM107.0m from RM156.0m, despite a 7% hike in revenue, largely due to a higher taxation of RM31.9m as the tax rate was higher than expected tax rate from 3Q15, which was partly due to a RM14m one-off write-back on PD Power loan stock. Although topline had improved slightly, it was still weak due to lower capacity payment on unplanned outages at Prai and SEV plants, especially in Oct 2015 and scheduled maintenance at the Tanjung Bin plant. On a positive note, associate income improved to RM7.4m from RM4.5m and we believe losses at KEV had been reduced.

YoY, 4Q15 net income dipped 5% from RM112.7m as revenue fell 7% on lower capacity payments from the abovementioned power plants. FY15 net profit jumped 33% to RM453.2m from RM341.5m despite revenue contracting 5% over the year. This was driven by: (i) lower interest expense by RM123.6m or 13% following the full redemption of RM1.8b Junior Sukuk Musharakah, (ii) higher interest income by RM59.4m or 45%, and (iii) higher Tanjung Bin earnings and the full accounting for PD Power’s earnings in FY15 which only became a 100%-owned subsidiary in April 2014 from 25%-owned previously.

Outlook

The operational issue at the 40%-owned associate KEV is unlikely to be resolved in the near-term, but it is expected to fare better in FY16 given lower maintenance cost anticipated. The PPA extension at PD Power to Feb 2019 and the T4 which will come onstream by Mar 2016 will be the new earnings drivers.

Change to Forecasts

We trim FY16E and NDPS by 5.6% on the following factors; (i) we had overstated PD Power’s earnings as we assumed old PPA terms till year-end; now we expect new PPA‘s capacity payment is only 50% of the old PPA’s, (ii) lower associate income, and (iii) higher effective tax rate of 29% from 24%. However, we upgrade FY17E and NDPS by 11.4% mainly due to the inclusion of PD Power’s PPA extension and the adjustment of effective tax rate and associate income as per FY16 assumption.

Rating

Maintain OUTPERFORM

Valuation

New price target is now reduced to RM2.07/share from RM2.19/share which is still at a 10% holding company discount to its SoP. The change in price target is mainly due to the adjustment of cash position following the full-year results release.

Risks to Our Call

Unexpected plant outages and prolonged losses at KEV.

Source: Kenanga Research - 22 Feb 2016