Tenaga Nasional Bhd (Jan 11, RM6.16)
Maintain buy with fair value RM6.57: We reiterate our “buy” call on Tenaga Nasional Bhd with an unchanged discounted cash flow-derived fair value of RM6.57 per share. This implies a CY12F price earnings ratio (PER) of 12 times and a price-to- book value (P/BV) of 1.2 times.
We maintain FY12F to FY14F earnings, which incorporate the one-off RM2 billion fuel relief provided for the natural gas shortage and assumption of normalised fuel costs.
Recall that in November last year, TNB received a letter from the government that laid out a fuel cost sharing mechanism to address the current increased cost borne by the group due to the gas shortage.
We expect further losses in the 1QFY12 results, which will be announced on Jan 17, due to high oil and distillate costs arising from the persistent natural gas shortage.
But the 1QFY12 loss would likely be lower than the RM454 million incurred in 4QFY11 given lower alternative fuel costs amid slightly improved natural gas supply during the flat quarter-on-quarter (q-o-q) seasonal electricity consumption.
Any recognition of the fuel relief in the coming results is unlikely as Petroliam Nasional Bhd is in the process of verifying the additional fuel costs borne by TNB from Jan 1, 2010 to Oct 31, 2011. For now, we do not have guidance on the fuel relief recognition.
Against a backdrop of the post-winter season and China’s lower purchasing, coal prices have fallen below US$100 (RM315) per tonne against our FY12F to FY14F assumption of US$110 per tonne.
We estimate that a US$10 per tonne reduction in FY12F to FY14F coal costs could raise TNB’s fair value by 24% to RM8.17 per share.
While electricity demand grew 7.2% in September/October 2011, we maintain FY12F electricity demand growth at 4% against our economist’s GDP growth forecast of 5% given the uncertain global economic outlook.
This is in line with management guidance.
We expect the upcoming national election to provide clarity to TNB’s key issues: (i) the timing of its tariff adjustment to compensate for higher fuel costs; and (ii) restoration of natural gas supply to the government’s assurance of 1,250 million metric standard cu ft per day (mmscfd) from just around 1,000 mmscfd currently.
The stock currently trades at a P/BV of 1.1 times, at the lower range of one times and 2.6 times over the past five years. Earnings-wise, TNB offers an attractive CY12F PER of 11 times compared with the stock’s three-year average band of 10 to 16 times. — AmResearch, Jan 11
This article appeared in The Edge Financial Daily, January 12, 2012.
Maintain buy with fair value RM6.57: We reiterate our “buy” call on Tenaga Nasional Bhd with an unchanged discounted cash flow-derived fair value of RM6.57 per share. This implies a CY12F price earnings ratio (PER) of 12 times and a price-to- book value (P/BV) of 1.2 times.
We maintain FY12F to FY14F earnings, which incorporate the one-off RM2 billion fuel relief provided for the natural gas shortage and assumption of normalised fuel costs.
Recall that in November last year, TNB received a letter from the government that laid out a fuel cost sharing mechanism to address the current increased cost borne by the group due to the gas shortage.
We expect further losses in the 1QFY12 results, which will be announced on Jan 17, due to high oil and distillate costs arising from the persistent natural gas shortage.
But the 1QFY12 loss would likely be lower than the RM454 million incurred in 4QFY11 given lower alternative fuel costs amid slightly improved natural gas supply during the flat quarter-on-quarter (q-o-q) seasonal electricity consumption.
Any recognition of the fuel relief in the coming results is unlikely as Petroliam Nasional Bhd is in the process of verifying the additional fuel costs borne by TNB from Jan 1, 2010 to Oct 31, 2011. For now, we do not have guidance on the fuel relief recognition.
Against a backdrop of the post-winter season and China’s lower purchasing, coal prices have fallen below US$100 (RM315) per tonne against our FY12F to FY14F assumption of US$110 per tonne.
We estimate that a US$10 per tonne reduction in FY12F to FY14F coal costs could raise TNB’s fair value by 24% to RM8.17 per share.
While electricity demand grew 7.2% in September/October 2011, we maintain FY12F electricity demand growth at 4% against our economist’s GDP growth forecast of 5% given the uncertain global economic outlook.
This is in line with management guidance.
We expect the upcoming national election to provide clarity to TNB’s key issues: (i) the timing of its tariff adjustment to compensate for higher fuel costs; and (ii) restoration of natural gas supply to the government’s assurance of 1,250 million metric standard cu ft per day (mmscfd) from just around 1,000 mmscfd currently.
The stock currently trades at a P/BV of 1.1 times, at the lower range of one times and 2.6 times over the past five years. Earnings-wise, TNB offers an attractive CY12F PER of 11 times compared with the stock’s three-year average band of 10 to 16 times. — AmResearch, Jan 11
This article appeared in The Edge Financial Daily, January 12, 2012.
