Tenaga Nasional : FY16 - A record year BUY

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Tenaga Nasional : FY16 - A record year   BUY

4Q16 headline net profit declined 24% QoQ to RM1.8bil while core net profit declined 20% QoQ to RM1.9bil, attributable to lower revenue. Net revenue declined 7% QoQ due largely to higher Imbalance Cost Pass Through (ICPT) charge of RM856mil for the quarter vs. RM538mil in the preceding quarter. TNB also declared a final single tier dividend of 22 sen/share, bringing FY16 total to 32 sen/share (FY15: 29 sen). That translates into a dividend payout ratio of 25%. Despite the lower 4Q16 earnings, TNB ended the year with a record RM7.4bil net profit. The strong earnings were attributable to solid growth in electricity demand. Demand in P. Malaysia in particular grew by 4% YoY, boosted by exceptionally dry weather in 2Q and 3Q. As a result, revenue grew by 7% YoY to RM44.5bil (+10% YoY ex-ICPT). EBITDA grew by a larger 19% YoY, benefiting from change in sales mix - demand from the Commercial sector, which commands a better margin, grew faster than the Industrial sector. That boosted average selling price in P. Malaysia by 4.6% to 39.6 sen/kWh.

As expected, the electricity demand trend is already moderating - 4Q16 demand slowed to +0.4% YoY from +6.2% YoY in the preceding quarter, as the El Nino (dry weather) pattern had already dissipated.  In the conference call following the results announcement, management indicated that the review of the group's capital management policy is ongoing and it is targeting for completion by year end. We updated our earnings model to reflect FY16 earnings. Given the slowing demand growth, we have cut FY17 assumption to -2% YoY (+0.5% previously) and reduced our long term assumption to +2% from +2.5%. The net impact is 2.5% upgrade in FY17 estimate but 0.4% cut in FY18 forecast. We introduce FY19 forecast of RM8.2bil (+1.0% YoY). Target price adjusted to RM19.36 from RM19.05 previously.

Others :

Pavilion Reit : 3Q16 within expectations BUY

Sunway Reit : Revenue within expectations        BUY

UMW Oil & Gas : No relief yet despite fresh Naga 8 charter          HOLD

Malaysia Marine & Heavy Engineering : Order book visibility remains opaque      HOLD

ECONOMIC HIGHLIGHTS

UK : Uncertainty remains

US : Still maintain our 75% chance for a rate hike

NEWS HIGHLIGHTS

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AirAsia : Group CEO says good interest in leasing unit sale

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Construction Sector : Prasarana to award LRT 3 tenders by year-end