Tenaga ... Jul12

ZJ Research ...

3QFY12 Results Review
• Tenaga Nasional Bhd (TNB) reported a net profit of RM3.2 bln in 9MFY12, which included fuel
compensation amounting to RM2.8 bln, offset by foreign translation loss of RM323.8 mln. The
RM2.8 bln payment comprised RM1.7 bln reimbursement for additional fuel costs incurred prior
to FY12 while the balance RM1.1 bln was compensation for the current financial year. Stripping
off the translation loss, the results were ahead of our expectation.

• For the quarter under review, reported net profit of RM619.1 mln was augmented by fuel
compensation amounting to RM777.8 mln. Without the fuel compensation and foreign
translation loss, core operating net profit would be approximately RM570 mln.

• For 9MFY12, turnover rose 14.8% y-o-y to RM26.5 bln, driven by 4.2% y-o-y increase in
electricity units sold in Peninsular Malaysia, as well as effect from the tariff hike in June 2011.
The 144.6% y-o-y increase in net profit was mainly due to the RM2.8 bln compensation as
mentioned earlier. Meanwhile, operating expenses increased 8.2% y-o-y on higher generation
costs, higher average coal price as well as coal consumption. Average coal price in 9MFY12
was USD107.5/mt against USD103.0/mt a year ago. Coal consumption too, was 11.5% higher
y-o-y at 15.5 mln mt in 9FY12.

• As for the gas curtailment issue, management explained that the fuel cost sharing mechanism
will be in place until the LNG re-gasification terminal in Melaka starts operations in September
2012. This should help cover two-third of the additional costs incurred by Tenaga in using
alternative fuels instead of gas. We also understand that while the gas supplied from the regasification
plant will be at market price, the Government would ensure the impact to Tenaga
would be neutral.

• Looking forward, we remain broadly positive on TNB’s prospects. Our optimism is underpinned
by several factors, such as, i) the additional fuel costs arising from the gas curtailment issue is
now partially mitigated by the fuel cost sharing mechanism, ii) assurance of neutral impact from
the gas supply from the LNG re-gasification plant, iii) coal prices that are trending down, and iv) fairly stable expected annual electricity demand growth of between 4%-5%. Earnings-wise, we
raised our FY12 earnings estimates to RM3.80 bln after imputing higher gas compensation from
the Government.

• No dividend was declared for the quarter under review.

Recommendation
We maintain our Buy recommendation with a higher DCF-derived fair value of RM7.54 (from RM7.20)
following our earnings revision and updating of valuation parameters. We believe the worst days are
over for TNB and outlooks are gradually improving based on reasons stated earlier. Moderating
factors include unexpected drop in gas supply, and uncertainty in tariff review given the impending
general election.