AmWatch - Tenaga Nasional : No tariff reviews in 2015 BUY, 21 Jan 2015

STOCK FOCUS OF THE DAY

Tenaga Nasional : No tariff reviews in 2015           BUY

We maintain our BUY call on Tenaga Nasional with an unchanged DCF-derived fair value of RM16.30/share, which implies a PE of 14x and a P/BV of 1.9x.

According to the Budget 2015 revision announced yesterday, electricity tariffs are expected to remain status quo in 2015 as the government has decided to defer the scheduled (six-monthly) tariff hikes for 2015. This measure – together with a similar postponement in the industrial sector’s scheduled gas price hike – is aimed at increasing private investments by improving the cost structure of commercial and industrial players. This latest decision follows the announcement in Nov 2014 that the existing electricity tariffs will be maintained until June 2015.

Although the electricity tariff was left unchanged at that time, the government had allowed savings from the reduction in capacity charge for the Gen-1 PPAs to be used to offset Tenaga’s cost under-recovery which amounted to ~RM600mil in FY14. The under-recovery was mainly due to the higher price of liquefied natural gas at RM47/mmbtu compared to the tariff 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 (at exchange rate of RM3.14/USD).

In our view, the postponement of electricity tariffs is not surprising given:- (1) expectations of a strong performance from Tenaga amidst moderating fuel cost; (2) the government’s intention to ensure a sustainable economy;  and (3) the availability of the stabilisation fund to compensate for under-recoveries. Market expectations, if any, were for tariff reductions this year. The deferral in tariff adjustment does not change our FY15F-FY17F earnings and fair value as our projections do not incorporate any hikes. Valuation-wise, the stock currently trades at a P/BV of 1.7x, which is within its 1.1x-2.0x range over the past 5 years. Tenaga also offers an attractive FY15F PE of 12.4x, compared with the stock’s three-year band of 10x-16x.

Others :

MBM Resources : Value emerging, beneficiary of “cash for clunkers”?    BUY

Capitamalls M’sia Trust : Rental reversion of +2.9% for FY14         BUY

QUICK TAKES

Rubber Gloves : Measures positive for the industry         OVERWEIGHT

Construction Sector : Revised 2015 Budget - Status quo for development spending                          OVERWEIGHT

NEWS HIGHLIGHTS

Felda Global Ventures Holdings : 2 new directors join FGV board

Media Chinese International Ltd : No shake-up of four dailies

Fraser & Neave Holdings : F&N to transfer GST savings to customers

DISCLAIMER:

The information and opinions in this report were prepared by AmResearch Sdn Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmResearch Sdn Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmInvestment Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice.