Friday, July 29, 2016

Tenaga Nasional : Strong 3Q on peak demand BUY

Tenaga Nasional : Strong 3Q on peak demand    BUY

We maintain BUY on Tenaga Nasional Bhd (TNB) with a higher DCF-based fair value of RM17.30/share (vs. RM16.60/share earlier) as we roll forward our base year to FY17F.
TNB’s reported net earnings for the 9M period grew 6% to RM5.6bil. Excluding forex translation, TNB reported earnings of RM5.9bil – up 9% YoY. Reported topline rose 5.6% for the 9M period – in tandem with a 5.3% electricity sales growth. As anticipated, 9M electricity sales in terms of unit in Peninsular saw a strong growth of 4.5% (vs. 2.5% a year earlier). This was mainly due to stronger demand from the commercial and domestic sectors, which grew 6% and 12% respectively during the 9M period (vs. 3% a year earlier). For the 3Q, earnings grew impressively to RM2.3bil (vs. RM790mil a year earlier). While the 3Q demand was strong, management is expecting demand to normalised in 4Q. We have increased our FY16F growth assumption to 4% (vs. 3.4% earlier; FY15F: 2.2%).

Looking ahead, we expect electricity demand to be sustained on steady demand. We maintain our FY17F growth assumption of 3.3% for now. While coal prices are on the rise, we expect TNB to continue to report cost over-recovery. Recall that the tariff rebate was maintained for the July-Dec 2016 period while the price of piped gas was adjusted upwards. Reserve margin is currently at 27.9% (vs. 22.5% in end-CY15). During the briefing, management reassured that its Turkey operations remain “business as usual” while the High Court had granted TNB leave to commence judicial proceedings for IRB’s additional assessments. It is also still seeking judicial review in relation to the PPA extension for YLTP’s Paka plant. Maintain BUY; TNB is our top pick for the utilities sector given the steady demand on stable fuel prices, while the ICPT mechanism ensures earnings stability. Potential upside includes a more attractive dividend policy moving forward (current policy: 40%-60% of annual FCF) as it reassesses its capital structure; it is expected to be announced at year-end. TNB is currently trading at 10x (vs. our implied FY17F target PE of 12x).

Others :
Malaysia Airports : 2Q16: Turkey remains a drag on group             HOLD
Wesports Holdings : Strong transhipment growth from ad-hocs in 1HFY16             HOLD
SapuraKencana Petroleum : New EPCI job in Turkey        HOLD

DRB-Hicom: Shareholders’ approval for KLAS deal with POS Malaysia      BUY
Construction Sector : Another two Pan Borneo awards  OVERWEIGHT

US : 2Q2016 GDP figure expected to shed light

Malayan Banking : Indonesia’s 1HFY16 earnings more than double on better income
Public Bank : 2Q net profit gains 5%
Malaysia Airports Holdings : Posts Q2 earnings of RM9mil on higher revenue
Astro Malaysia Holdings : Ends ties with Bloomberg Malaysia

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