AmWatch - Tenaga Nasional : No tariff hike but FY15F earnings boosted by PPA and fuel cost savings BUY, 6 Nov 2014

STOCK FOCUS OF THE DAY

Tenaga Nasional : No tariff hike but FY15F earnings boosted by PPA and fuel cost savings              BUY

We reiterate our BUY call on Tenaga Nasional (Tenaga) with a slightly higher fair value of RM15.13/share (from RM15.00/share previously), which implies an FY15F PE of 13x and a P/BV of 2.0x. The Energy, Green Technology and Water Minister Datuk Seri Dr Maximus Ongkili has said that the existing electricity tariffs will be maintained until June 2015. Additionally, the price of piped gas supplied by Petronas to the power sector is also left unchanged at RM15.20/mmbtu.

The last hike in electricity prices was on 1 Jan 2014, when tariffs were raised by 14.9% to 38.5sen/kWh in Peninsular Malaysia, and 16.9% to 34.5sen/kWh in Sabah. The hike was, however, largely offset by an 11% increase in domestic natural gas price and imported LNG price at RM41.68/mmbtu. The net tariff increase was 3%. Although the electricity tariff is unchanged, the government had allowed savings from the reduction in capacity charge (since 1 March 2013) for the first generation power purchase agreements to be used to offset the cost under-recovery due to the higher price of liquefied natural gas at RM47/mmbtu compared to the threshold of RM41.68/mmbtu. This was despite FY14 coal costs of USD75.40/tonne being below the tariff’s assumption of USD87.50/tonne.

The government’s move is in line with its earlier proposal to use the savings as part of a fuel stabilisation fund. The balance of PPA savings is estimated to be RM170mil after deducting the ICPT costs needed to maintain the current tariffs. Despite the absence of an upward tariff revision, we believe Tenaga’s earnings revision cycle remains intact, underpinned by the previous round of tariff hike. Following the government’s decision, Tenaga will gain a one-off boost of RM1148mil to its FY15F pretax profit. This translates to a 16% upwards earnings revision to our FY15F forecasts. Our estimates for FY16F-FY17F are maintained.

Others :

M’sia Marine & Heavy Eng : Weak earnings due to slow project rollouts SELL

Automotive Sector  : The Yen is a Friend                NEUTRAL

QUICK TAKE

Water Sector  : Another RM3bil more     NEUTRAL

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