STOCK FOCUS OF THE DAY
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
QUICK TAKES
DRB-Hicom: Shareholders’ approval for KLAS deal with POS
Malaysia BUY
Construction Sector : Another two Pan Borneo awards
OVERWEIGHT
ECONOMIC HIGHLIGHTS
US : 2Q2016 GDP figure expected to shed light
NEWS HIGHLIGHTS
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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