Tenanga Nasional - 4Q12 above market

Period    4Q12 / FY12

Actual vs. Expectations

 FY12 core earnings of RM3.35b was above street but within our expectations, being 19% and 5% ahead of street’s and ours, respectively, on the back of better fuel cost dynamics. Note our core earnings exclude one-offs and include compensations (refer to notes). 

Dividends   4Q12 NDPS of 15.0sen, implying FY12 NDPS of 20.0sen (2.4% yield) vs. our 22.0sen estimates. 

Key Results Highlights

 YoY, FY12 core earnings rose 48% on higher unit demand (+4.3%) and EBITDA margins improved to 25.2% (+1.9ppt). Gas supply was better at 929-988mmscfd (FY11: 900-994mmsfd). Higher coal usage (+10% to 20.8m MT) at lower coal prices (-1% to RM322/MT or USD104/MT) helped to contain cost per unit. So that generation from expensive MFO/diesel was lower at 4.8% from FY11’s 5.1%. Furthermore, fuel compensations mean higher unit demand is met by more normalized fuel cost. 

 QoQ, 4Q12 core earnings of RM1.21b was up 15% after excluding one-off provisions of RM160m due to Irham Niaga legal suit. Besides the above, other operating income also improved to the black of RM151m (3Q12: -RM261m) whilst interest income grew to RM87m (3Q12: RM1m). 

Outlook   Tenaga’s FY13E guidance; 1) Peninsula demand growth of 4%-5% (ours: 4.2%); 2) coal cost of <USD100/mT (ours: USD97/mT). It also appears gas supply will hover at 950-1100mmscfd until Melaka RGT is online. 

 Melaka RGT gas supply at market prices will likely commence in early CY13. However, Tenaga maintains NEUTRAL earnings impact given strong government support and its CAPEX obligations (refer overleaf). 

Change to Forecasts

 No material changes to FY13E core earnings of RM3.37b (+2%) (refer overleaf).  

Rating  Maintain OUTPERFORM

 Limited downside risk with the government’s assurance that fuel-cost compensations will continue until PEMANDU’s subsidy rationalization plan is in place. Catalyst will be next year’s tariff review, which hinges on GE timing.

Valuation    Slightly higher TP of RM8.05 (RM7.90 previously) based on unchanged 13x Fwd PER and slightly higher FY13E core EPS. 

Risks   Risks lie with government’s ability to continue compensation (or via a stabilization fund) before fuel-cost-pass-through tariff kicks-in.   

Source: Kenanga