It has been a good FY13 for TNB, with improved financial performance, favourable exchange rates and fuel costs, gas supply resolution and new power plant wins. Results for the full year of FY13 were within expectations, with revenue of RM37.1bn (+3.6% y-o-y) versus our forecast of RM37.0bn and PATAMI of RM4.6bn (+4.6% y-o-y) exceeeding our forecast of RM4.2bn. Excluding forex gains of RM602.7m, core net profit for the full year of RM4.0bn is in line with our expectations. Performance for the fourth quarter was affected however by provisions and forex losses, resulting in net profit for the quarter decreasing to RM0.2m compared to RM1.1bn in 4QFY12. The Group declared a final single-tier dividend of 15 sen per share, bringing full year dividend to 25 sen per share.

Lower fuel costs. Overall fuel costs decreased by 6.1% y-o-y to RM14.8bn in FY13, from RM15.8bn in FY12. This is mainly attributed to lower coal prices and reduced usage of oil. Coal costs decreased 20.6% y-o-y from RM7.0bn in to RM5..6bn in FY13, despite a 1% increase in coal-based generation. This quarter also recorded charges for imported liquefied natural gas (LNG) for the first time, amounting to RM348.9m.

Quarterly net profit (-80.2% y-o-y, -87.8% q-o-q). Net profit for the quarter fell 80% y-o-y to RM0.2m (4QFY12: RM1.1bn) due to forex losses and provisions. TNB recorded a RM532.4m forex loss in 4QFY13 compared to an RM81.9m forex gain in 4QFY12 as the weaker ringgit contributed to fair value losses in the Group's foreign currency denominated loans. Operating expenses also jumped due to a number of provisions in the final quarter.

Reiterate Outperform with unchanged TP of RM10.48. We reiterate our Outperform call with CDF-derived price of RM10.48, implying FY14 P/E of 14x. Valuations are undemanding in our option, due to TNB's defensive nature and its position as the biggest winner of structural reforms in the local power sector. Besides earnings grwoth from its capacity expansion, the Group is also posed to benefit from the implementation of incentive-based regulation (IBR) which would see its earnings being based on rewards for efficiency instead of subject to forces beyond its control.

Source: PublicInvest Research - 1 Nov 2013