Tenaga Nasional - FY13 starts on a high note

Period    1Q13

Actual vs. Expectations   1Q13 results were above expectations with core earnings of RM1.02b which accounted for 30% of our FY13 full-year estimates and 32% of market consensus. The stronger-than-expected results were mainly attributable to lower coal cost, higher than expected fuel compensations and better sector demand profile.  

Dividends   No dividend was declared, as expected.  

Key Results Highlights   Despite revenue dipping 2% QoQ, 1Q13 core earnings rose 11% to RM1.02b. Coal cost was lower as average prices slid 8.5% QoQ to USD84.4/MT, coupled with a stronger RM. Although average daily gas supply improved by 2% to 1043mmscfd while unit electricity demand growth in 1Q13 was lower at 3.5% vs. 4.3% in 4Q12, generation of expensive MFO/diesel increased to 6.6% of the generation mix vs. 4.8% in 4Q12; there were gas outages in OctNov 2012 while demand base is higher. Positively, fuel compensations came to the rescue and shored up EBITDA margins to 31% (+5ppt). Lastly, demand growth was mainly driven by the commercial sector which enjoys higher tariffs vs. industrials.  

 On a YoY comparison, 1Q13 core earnings surged 37% from RM742.2m in 1Q12 on the back of 5% hike in revenue. In 1Q12, average coal price was 30% higher at USD110.0/MT while RM in 1Q13 strengthened by 7.4% over the year. Fuel cost compensation in 1Q13 of RM538.5m was better compared to RM529.6m in 1Q12. 

Outlook   Tenaga’s FY13E guidance; 1) Peninsula demand growth of 4%-5% (ours: 4.2%); 2) coal cost of <USD100/mT (ours: USD97/mT); and, 3) gas supply volume of 1,000MMscfd. 

 Timeline of IBR implementation and improved foreign shareholding further reiterates our positive views on Tenaga (refer overleaf). 

Change to Forecasts    Although 1Q13 result is stronger-than-expected, we are keeping our FY13-14E earnings pending our upcoming company visit. 

Rating  Maintain OUTPERFORM

Valuation    Maintain TP of RM8.05, based on 13x Fwd PER. 

Downside risk is limited as the stock is trading at FY13E PER of 11x and FY13E PBV of 1.0x which is close to trough levels. 

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