AmWatch - Tenaga Nasional : Reinvestment allowances boost earnings BUY, 25 Apr 2014

STOCK FOCUS OF THE DAY

Tenaga Nasional : Reinvestment allowances boost earnings         BUY

We maintain our BUY call on Tenaga Nasional (Tenaga) with a higher DCF-derived fair value of RM15.00/share (vs. RM14.90/share previously), which implies an FY15F PE of 14x and a P/BV of 2.2x. We have raised Tenaga’s FY14F earnings by 30% largely due to the significant positive tax charge arising from the reversal of deferred tax provisions. This stemmed from reinvestment allowances not recognised in FY13 as well as future reinvestment allowances (RM76mil in 2QFY14) from the group’s capital expenditure programme, as management is now claiming these incentives under plant & equipment in the manufacturing category. Tenaga’s 1HFY14 core net profit (excluding forex gains of RM134mil) of RM3,271mil came in way above expectations, accounting for 66% of our earlier FY14F net profit of RM4,940mil and 67% of street’s RM4,889mil. But this stemmed largely from the group’s reinvestment allowances of RM662mil and over-provision of RM189mil due to the 1%-point change in corporate tax rate to 24%. But Tenaga maintained its interim dividend at 10 sen/share. Likewise, Tenaga’s 2QFY14 core net profit rose by 21% QoQ to RM1,789mil largely due to these reinvestment allowances. The stock trades at a decent P/BV of 1.8x, within the adjusted 1.1x-2.0x over the past 5 years. Tenaga also offers a fair FY15F PE of 11.5x, compared with the stock’s 3-year average band of 10x-16x. Foreign shareholding has slid slightly to 27.3% in March this year, down slightly from 27.8% in December 2013, and near its peak of 28% back in April 2007.

Others :

Genting Singapore : Implications of MBS’ 1QFY14 results HOLD

British American Tobacco : 1QFY14: Earnings supported by higher volumes and margin expansion             HOLD

QUICK TAKES

IOI Corporation : To repurchase US$ notes           BUY

Genting Malaysia : Submits application fee for upstate casino in New York            HOLD

Pavilion Reit : AEIs to complete in May   HOLD

RHB Capital : Key targets for FY14F maintained   HOLD

NEWS HIGHLIGHTS

Magnum : Proposes share buyback

Malaysia Airports Holdings : Net profit up 2% on surge in traffic

Carlsberg Brewery Malaysia : Expects softer 2014, focuses on cost efficiency