Unisem, Insas, HSS Engineers, Plastrade Technology

STOCK FOCUS OF THE DAY

Tenaga Nasional : Attractive despite niggling higher costs           Buy

TNB recorded a 3QFY17 core profit of RM1.692bil (QoQ: 17%, YoY: -27%) bringing 9MFY17 core profit to RM5.104bil (YoY: -12.8%). This came in below expectations at only 70% and 68% of our full-year forecast and the full-year consensus estimates respectively.  3QFY17 revenue grew 3.5% YoY, softening 9MFY17 revenue to a growth of 5.0%. For the quarter, recoverability of higher generation cost more than offset electricity sales which contracted 4.1%. It was primarily attributed to domestic unit demand sales plunging 10.4% and marginally lower average tariff rates. El Nino boosted electricity demand in 3QFY16. Going forward, we expect demand sales to normalise amid elevated tariff rates, driven by commercial  segment outpacing the other lower yielding segments.

We lower our FY17/18F earnings by -3% to -5% after revising our operating margin assumptions. Key risks to our forecast include a slowdown in economic growth and unscheduled plant outages. We downplay concerns over new regulatory period 2 parameters as we think TNB’s fundamentals are firmly entrenched with its resilient earnings visibility, robust balance sheet and exciting M&A outlook. Maintain BUY with a DCF-based FV of RM17.55 (from RM18.50) (WACC: 7.7% TG: 2.0%). Valuations remain compelling at 10.6x CY17 PER with a decent dividend yield of 4.3-4.9% for FY17-19F.

Others :

Pavilion REIT : Acquisition of Pavilion ELITE may not offset weak 2Q17     Hold

STOCKS ON RADAR

Unisem, Insas, HSS Engineers, Plastrade Technology

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