Tenaga Nasional (Tenaga) has been receiving less than 1000mmscfd
gas supply for the first half of 3Q12 due to outages at PETRONAS’ facilities.
It is disappointing as it is less than
our assumed FY12E gas supply average of 1150mmscfd, meaning there could be a
14% downside to our FY12E core earnings (excluding fuel compensations). On the
positive side, Tenaga will get fuel compensations up till Sep-12, which
minimises its cash flow risks for the year. We think the FY12 gas supply
volatility is fully priced in and investors will look towards FY13E for a more normalised
gas supply, declining coal prices and strong government support, which will
lead to either regular fuel compensations or tariff hikes. For now, we maintain
our FY12-13E core earnings at RM1.82b-RM2.98b pending further clarity on gas supply
for the remaining second half of 3Q12. We also maintain an OUTPERFORM on Tenaga
with an unchanged TP of RM7.50 based on average FY12-13E core EPS and target
Fwd PER of 17.0x.
Mar-12 average gas
supply is less than 1000mmscfd, as PETRONAS facilities underwent planned
maintenance. Suruhanjaya Tenaga (ST) website indicated Mar-12 average gas
supply to the power sector was at 974mmscfd. Neither was early Apr-12 spared as
the month’s average gas levels remained at less than 1000mmscfd due to unplanned
outages; ST indicates 920mmscfd average between 1/4/12 to 22/4/12. However,
May-12 supply is said to be improving although the quantum has not been revealed.
The weaker gas supply in the first half of 3Q12 is disappointing, particularly when
we expect FY12E to average at 1150mmscfd.
Risks to earnings
mitigated by government compensations.
Assuming 3Q12 and 4Q12 gas supply averages at 1000mmscfd and 1150mmscfd
respectively, FY12E average will only be 1012mmscfd. This also assumes FY12E
Peninsular’s unit demand growth is maintained at 4.5%. If so, it means our FY12E core earnings could potentially be
lowered by 14% to RM1.56b; note we do not include fuel compensations in our
core earnings calculations. However, note that Tenaga will get fuel compensations
until Sep-12, which minimises its cash flow risks (note reimbursements lag by 1
quarter). If our scenario pans out, total fuel compensations for 2H12 could
amount to c.RM260m (before tax), meaning Tenaga will get c.RM170m (before tax)
after apportioning among Tenaga, government and PETRONAS. For now, we maintain
our FY12-13E core earnings at RM1.82bRM2.98b pending further clarity on 3Q12’s
remaining second half gas supply.
Looking towards
FY13E. We think FY12E gas supply issues have been fully priced in and
investors are looking towards 1) FY13E normalised gas supply, particularly when
the Melaka regasification plant can firmly cater for another 200mmscfd to the power
sector by Aug/Sept-12, 2) increasing possibility of Tenaga passing on market prices
of gas arising from Melaka regasification gas supply via tariffs or being compensated
by the government and 3) declining coal costs given increasing supply. More
importantly, there is a strong show of government support. To recap, management
mentioned during the 2Q12 briefing that the government would ensure ‘neutral’
impact from gas price increases, which would appear to address concerns of Tenaga
buying portions of gas at market prices.
Importance of
efficient power plants. The
government will be rolling out 4,500MW new gas power capacity and the first up
is the bid for the new Prai gas power
plant (up to 1,400MW); so far, there are 9 short-listed bidders for Prai which includes
consortiums led by Tenaga, YTL Power International (MP; TP: RM1.82), MMC Corporation’s
(OP; TP: RM3.20). We had the privilege of visiting Tenaga’s most efficient gas
power plant (CCGT), namely Tuanku Ja’afar Power Station @ Port Dickson (more
details below). The plant underwent a ‘rehabilitation’ which improved efficiency
to 56% from 38% previously. Our back of the envelope calculation reveals that
every 5ppt increase in efficiency rate lowers
gas fuel cost by 8%-10% to produce the same amount of electricity. This
would be another avenue to reduce fuel costs burdens over the longer run.
Source: Kenanga
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