Thursday, May 3, 2012

Tenaga ... May12

ZJ Research ...

2QFY12 Results Review
• After three consecutive of net losses, Tenaga Nasional Bhd (TNB) swung back into profitability
with a net profit of RM2.81 bln for 2QFY12, that includes a gas shortage compensation of
RM2.02 bln (or RM1.5 bln net of tax) and foreign translation gain of RM628.4 mln. Excluding
these, 2QFY12 core net profit was RM682.4 mln, taking 1HFY12 core net profit to RM876.8 mln.
The results were broadly within our expectations for a RM2.2 bln core net profit in FY12 as we
continue to anticipate a stronger 1HFY12 performance.

• Stripping off the compensation and the foreign translation gain, the Group’s 2QFY12 core net
profit came in at RM628.4 mln vs. RM194.4 mln in 1QFY12. The improved performance during
the quarter under review was due to lower operating cost as a result of reduced usage of
alternative fuels, as well as strengthening of RM against USD (+5.7% q-o-q) and Yen (+8.6% qo-
q). Total costs for alternative fuels (oil and distillate) declined 67% q-o-q in 2QFY12 to
RM329.4 mln from RM1,00 bln in the preceding quarter. This pushed 2QFY12 EBITDA margin
up to 25.6% from 15.1% in 1QFY12 (ex-fuel cost compensation).

• Cumulatively, 1HFY12 revenue rose 14.7% y-o-y to RM17.32 bln on 4.1% y-o-y growth in
electricity units sold in Peninsular Malaysia as well as the effect from the tariff hike in June 2011.
The 78.5% y-o-y rise in PBT profit was again largely attributed to the gas compensation, without
which, the PBT would have declined 28.7% y-o-y to RM1.35 bln. The 20.5% y-o-y surge in
1HFY12 opex was chiefly from higher generation costs. To recap, TNB’s performance over the
past several quarters was severely affected by shortage in gas supply which resulted in the
Group using the more expensive alternative fuels (i.e. oil and distillate).

• Looking ahead, TNB’s prospects are certainly improving. The gas curtailment issue appears to
have been subsided with the increase in supply in the horizon. In fact, gas supply has gradually
risen to the present 1,050-1,100 mmscfd level from the low of 900 mmscfd in 3QFY11.
Management indicated that the average gas supply in 2HFY12 should be higher than 1HFY12,
though still below the required level of 1,250 mmscfd.

• Furthermore, TNB expects to recognize another RM250 mln in compensation for the gas
shortage between September 2011 and February 2012. Note that the RM2 bln compensation
was for the period of January 2010 and October 2011. We also understand that the
Government would now continue to reimburse approximately two-thirds of the additional
alternative fuel cost incurred up to September 2012. This would greatly help cushions the
Group’s fuel cost burden till the LNG re-gasification plant in Malacca commences operations
sometime in end 2012.

• Meanwhile, we also anticipate demand for electricity to pick up in 2HFY12 based on historical
trend and as the pace accelerates for the implementation of certain major infrastructure projects
such as the MRT line. We expect TNB’s 2HFY12 results to be robust, with electricity demand
pushing topline growth while reduction in opex would boost profitability. Earnings-wise, we
raised our FY12 earnings estimates to RM3.60 bln after making some adjustments that include
the gas compensation from the Government.

• TNB has declared an interim gross dividend of 5.09 sen, comprising 0.38 sen less 25% tax and
4.71 sen single-tier dividend.

With electricity demand expected to rise and the Government’s gas compensation scheme easing the
burden of TNB’s fuel, we now turn positive on TNB and are upgrading our recommendation to Buy
from hold, with a higher DCF-fair value of RM7.20 following our earnings revision. Moderating factors
include unexpected drop in gas supply, prolonged search for its CEO and CFO replacement which
may affect corporate strategy and uncertainty in tariff review given the impending general election.


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