AmWatch - Tenaga Nasional : Tariff rebate remains but piped gas price up 10% BUY, 26 Jun 2015

STOCK FOCUS OF THE DAY

Tenaga Nasional : Tariff rebate remains but piped gas price up 10%          BUY

We maintain BUY on Tenaga Nasional Bhd but lower our fair value from RM17.00/share to RM16.40/share, which implies a forward PE of 14.5x and P/BV of 1.9x. Tenaga said that the Imbalance Cost Pass-Through (ICPT) rebate of 2.25 sen/kWh for Peninsular Malaysia will be extended for the next six months, i.e. from 1 July 2015 to 31 December 2015.

Back in February 2015, the government had approved a reduction in power tariffs for Peninsular Malaysia by 2.25sen/kWh (-5.8%) and Sabah by 1.20sen/kWh (-3.5%) effective 1 March to 30 June 2015. No mention of an extension for the rebate for Sabah was made. The ability to maintain the tariff rebate stems from the ongoing availability of ICPT savings, which had increased by RM59mil since the last review, to RM786mil (for the January to June 2015 period). The savings/cost-over-recoveries come on the back of lower generation costs. Note that there is also an additional RM300mil of savings from the renegotiation of the PPAs of the 1st generation IPPs in the stabilisation fund.

Although the status quo tariff will be earnings neutral to Tenaga given that tariff adjustments are now determined through the Incentive Based Regulation (IBR) framework and ICPT mechanism, we have had to tweak Tenaga’s FY15F-FY17F earnings lower by 2%-3%. This adjustment follows the announcement of an increase in the benchmark rate for natural gas (piped) from RM15.20/mmBTU to RM16.70/mmbtu (+10%) for the existing tariff regime.

Tenaga’s shares has been under heavy selling pressure of late following concerns that it will be overpaying for Edra Global Energy’s 70% stake in Jimah East Power (Project 3B). The stock had retraced by 15% since the press reported of the possibility of Tenaga taking over the project back in February 2015.   At the current price, the stock is trading at an undemanding FY15F-FY16F PEs of 11x, below its 3-year average of 15x. Dividend yields are also decent, at 2.7%.

Others :

Gamuda : Debuts in Singapore   BUY

Capitamalls Malaysia Trust : Issuance of new units fixed at RM1.32/unit HOLD

Media Sector : Betting on the binge        NEUTRAL

Automobile Sector : TIV normalizing, but excess inventories seen             NEUTRAL

QUICK TAKES

Yinson Holdings : Proposes private placement    BUY

Water Sector : Amendments needed for supplementary agreement      NEUTRAL

Rubber Gloves : Rubber prices still acceptable    OVERWEIGHT

NEWS HIGHLIGHTS

AirAsia : Fernandes casts other work aside amid accounting worries

Sunway : Eyes RM1.5bil in new construction projects

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.