• FY15 core net profit was above expectations primarily on lower-than-expected system loss.
• DPS was however maintained at FY14’s level, as the company opted to conserve cash.
• Reiterate BUY with an unchanged TP of MYR16.00.

What’s New

4QFY15 net profit (ex-forex) of MYR1.58b (+4% YoY, +116% QoQ) brings FY15 net profit (ex-forex) to MYR7.05b (+30% YoY), 8% above ours and consensus forecasts respectively. The beat was mainly due to a record-low system loss (8.3% in FY15, historical range 10-12%). A final DPS of 19sen was declared, bringing full year DPS to 29sen, unchanged from FY14.

Management reported the fuel cost over-recovery for 4QFY15 at just MYR34m, as the 2.25sen/kWh tariff rebate was in place, and oil and distillates usage also increased.

What’s Our View

FY15 electricity generation was likely lower than budgeted given the weaker-than-projected demand (+2.2% YoY) and the record low system loss. This led to better-than-expected generation mix (coal was up, to 45.6% from 39.8% in FY14), hence the earnings beat. If system loss continues to remain below trend, TNB would be able to deliver earnings growth in FY16.

That DPS was maintained at FY14’s level was a surprise, as TNB has scope to pay out more. Nevertheless, cash conservation in lieu of possible M&A is prudent, in our view. In any case, yield was not a major part of TNB’s investment case.

We make slight tweaks to our FY16/FY17 earnings (+3% each), and introduce FY18 forecast. Our MYR16.00 TP for TNB is unchanged, and is derived using a DCF, assuming 7.5% WACC and 1% long-term growth. Our TP implies 12.5x FY16 PER.

Source: Maybank Research - 30 Oct 2015