Tenaga Nasional Bhd (Oct 21, RM5.46)
Maintain hold at RM5.55 with revised target price of RM5.90 (from RM6.60): We believe that the upcoming 4QFY11 results scheduled on Friday will be very weak due to insufficient gas supply that necessitates using oil and distillates as a fuel source to generate power (a significantly more expensive and money losing proposition). We maintain our “hold” call, with a lower target price of RM5.90 (from RM6.60) after imputing the impact of gas supply issues. We favour the price-earnings ratio methodology and continue to apply TNB’s long-term average of 13 times on FY12 forecast earnings to derive our target price.
We estimate TNB will report a loss of RM230 million for 4QFY11, which is slightly better than the RM478 million core net loss achieved in 3QFY11. Gas supply disruption will force TNB to burn oil and distillates, and we estimate this to add RM1.2 billion to cost (versus RM1.4 billion in 3QFY11). The 2% base tariff increase in June will add RM160 million to RM170 million in additional revenue (one full quarter of impact) but it is insufficient to offset the impact of higher fuel costs.
This is the million ringgit question. The latest indication from Petronas is by end-October, and assuming the repairs are completed, it will recover 150 mmscfd back into the gas line. TNB’s allocation will be at least half of the recovered amount (75 mmscfd) and this will ramp up the total natural gas flow to TNB to 1,100-1,120 mmscfd, which should be sufficient for FY12 needs.
We estimate a base tariff hike of 1.0% to 1.5% in December, the next review date, based on fuel cost movements in the last six months. However, doubts linger whether the government will allow a hike given the impending general election. A 1% base tariff increase in December may lift our FY12 earnings forecast by RM188 million (7.6%).
We think TNB’s short-term outlook is dire, as 1QFY12 will continue to be loss making and will only be substantially profitable if the gas supply reverts to normal level (more than 1,150 mmscfd). We imputed these parameters and lowered our net profit forecasts: FY11 (37%), FY12 (11%) and FY13 (6%). — Maybank IB Research, Oct 21
This article appeared in The Edge Financial Daily, October 24, 2011.
Maintain hold at RM5.55 with revised target price of RM5.90 (from RM6.60): We believe that the upcoming 4QFY11 results scheduled on Friday will be very weak due to insufficient gas supply that necessitates using oil and distillates as a fuel source to generate power (a significantly more expensive and money losing proposition). We maintain our “hold” call, with a lower target price of RM5.90 (from RM6.60) after imputing the impact of gas supply issues. We favour the price-earnings ratio methodology and continue to apply TNB’s long-term average of 13 times on FY12 forecast earnings to derive our target price.
We estimate TNB will report a loss of RM230 million for 4QFY11, which is slightly better than the RM478 million core net loss achieved in 3QFY11. Gas supply disruption will force TNB to burn oil and distillates, and we estimate this to add RM1.2 billion to cost (versus RM1.4 billion in 3QFY11). The 2% base tariff increase in June will add RM160 million to RM170 million in additional revenue (one full quarter of impact) but it is insufficient to offset the impact of higher fuel costs.
This is the million ringgit question. The latest indication from Petronas is by end-October, and assuming the repairs are completed, it will recover 150 mmscfd back into the gas line. TNB’s allocation will be at least half of the recovered amount (75 mmscfd) and this will ramp up the total natural gas flow to TNB to 1,100-1,120 mmscfd, which should be sufficient for FY12 needs.
We estimate a base tariff hike of 1.0% to 1.5% in December, the next review date, based on fuel cost movements in the last six months. However, doubts linger whether the government will allow a hike given the impending general election. A 1% base tariff increase in December may lift our FY12 earnings forecast by RM188 million (7.6%).
We think TNB’s short-term outlook is dire, as 1QFY12 will continue to be loss making and will only be substantially profitable if the gas supply reverts to normal level (more than 1,150 mmscfd). We imputed these parameters and lowered our net profit forecasts: FY11 (37%), FY12 (11%) and FY13 (6%). — Maybank IB Research, Oct 21
This article appeared in The Edge Financial Daily, October 24, 2011.
