Tenaga Nasional Bhd (Dec 2, RM5.64)
Maintain buy at RM5.68 with revised fair value of RM6.57 (from RM6.40): We reiterate our “buy” call on Tenaga Nasional Bhd (TNB), with a higher discounted cash flow-derived fair value of RM6.57 against RM6.40 previously due to the higher-than-expected fuel sharing relief from the government and Petroliam Nasional Bhd (Petronas).
We maintain our core FY12F earnings of RM2,886 million, but have incorporated an additional RM1 billion in exceptional fuel cost relief from the government and Petronas. The additional FY12F earnings translate into a 17 sen per share increase in TNB’s discounted cash flow to RM6.57 per share.
Recall that our earlier FY12F net profit of RM3,983 million had already assumed a writeback of 50% of the additional fuel cost of RM2.1 billion suffered by TNB in FY11. Our new FY12F net profit of RM4,933 million assumes a writeback of RM2 billion fuel relief.
Our FY12F/FY13F assume normalisation of fuel costs, hence are 8% to 38% above street estimates. We believe these are more reflective of TNB’s earnings as any additional fuel costs next year will likewise be shared with the relevant parties.
TNB has received a letter from the government that provides a fuel cost sharing mechanism to address the current increased cost borne by the group due to the gas shortage. TNB will be liaising soon with the relevant parties to implement this mechanism.
As mentioned in our past reports, TNB is bearing higher operational costs due to running its gas-based power plants on expensive alternate fuels and power imports from Singapore and Thailand.
The letter provides that TNB, Petronas and the government will equally share the differential cost of RM3.1 billion incurred by TNB due to the usage of alternative fuels from Jan 1, 2010 until Oct 31, 2011. Assuming TNB bears only a third of the differential cost, this translates into a one-off RM2 billion relief to the group.
While management does not expect Petronas to fully alleviate the natural gas shortage next year, we expect the supply to be 10% above the 950 mmscfd registered in 2HFY11. Notwithstanding the ongoing gas shortage, the Economic Planning Unit had earlier given assurance that TNB will secure 1,250mmscfd in 2008 to 2011 and 1,350mmscfd next year onward. Hence, we expect Petronas, which will now share a third of the additional fuel cost, to speedily resolve its upstream problems.
The stock currently trades at a price-to-book value of one times, at the lower range of one to 2.6 times over the past five years. Earnings-wise, TNB offers an attractive CY12F price-earnings ratio of eight times compared with the stock’s three-year average band of 11 to 16 times. — AmResearch, Dec 2
This article appeared in The Edge Financial Daily, December 5, 2011.
Maintain buy at RM5.68 with revised fair value of RM6.57 (from RM6.40): We reiterate our “buy” call on Tenaga Nasional Bhd (TNB), with a higher discounted cash flow-derived fair value of RM6.57 against RM6.40 previously due to the higher-than-expected fuel sharing relief from the government and Petroliam Nasional Bhd (Petronas).
We maintain our core FY12F earnings of RM2,886 million, but have incorporated an additional RM1 billion in exceptional fuel cost relief from the government and Petronas. The additional FY12F earnings translate into a 17 sen per share increase in TNB’s discounted cash flow to RM6.57 per share.
Recall that our earlier FY12F net profit of RM3,983 million had already assumed a writeback of 50% of the additional fuel cost of RM2.1 billion suffered by TNB in FY11. Our new FY12F net profit of RM4,933 million assumes a writeback of RM2 billion fuel relief.
Our FY12F/FY13F assume normalisation of fuel costs, hence are 8% to 38% above street estimates. We believe these are more reflective of TNB’s earnings as any additional fuel costs next year will likewise be shared with the relevant parties.
TNB has received a letter from the government that provides a fuel cost sharing mechanism to address the current increased cost borne by the group due to the gas shortage. TNB will be liaising soon with the relevant parties to implement this mechanism.
As mentioned in our past reports, TNB is bearing higher operational costs due to running its gas-based power plants on expensive alternate fuels and power imports from Singapore and Thailand.
The letter provides that TNB, Petronas and the government will equally share the differential cost of RM3.1 billion incurred by TNB due to the usage of alternative fuels from Jan 1, 2010 until Oct 31, 2011. Assuming TNB bears only a third of the differential cost, this translates into a one-off RM2 billion relief to the group.
While management does not expect Petronas to fully alleviate the natural gas shortage next year, we expect the supply to be 10% above the 950 mmscfd registered in 2HFY11. Notwithstanding the ongoing gas shortage, the Economic Planning Unit had earlier given assurance that TNB will secure 1,250mmscfd in 2008 to 2011 and 1,350mmscfd next year onward. Hence, we expect Petronas, which will now share a third of the additional fuel cost, to speedily resolve its upstream problems.
The stock currently trades at a price-to-book value of one times, at the lower range of one to 2.6 times over the past five years. Earnings-wise, TNB offers an attractive CY12F price-earnings ratio of eight times compared with the stock’s three-year average band of 11 to 16 times. — AmResearch, Dec 2
This article appeared in The Edge Financial Daily, December 5, 2011.
