The ministry, in a statement yesterday, clarified the situation on the short-term agreements
KUALA LUMPUR: Tenaga Nasional’s 12MFY8/17 core net profit (excluding forex loss and RM150m accrued interest from power purchase agreement savings fund) was in line, making up 99% of CIMB Equities Research’s original FY8/17 full-year estimate.
It said on Friday the power giant had changed its FYE from August to December and it had adjusted its forecasted earnings accordingly to reflect the changes.
“The 12MFY17 core earnings fell 9% -on-year on higher operating and finance expenses, and an increase in deferred tax expense.
Its revenue grew by 6% -on-year while earnings before interest, tax, depreciation and amortization (EBITDA) rose 5% -on-year.
However, Tenaga’s tax rate spiked to 17% in 12MFY17 from 9% in FY16, which was largely anticipated due to lower reinvestment allowance.
“We believe Tenaga’s tax rate will gradually inch up to the range of low 20% after the reinvestment allowance expires in 2018 and 2019,” it said.
CIMB Research also noted Tenaga revised its existing dividend policy, from a dividend payout ratio of 30%-50% to between 30%-60%.
“A final DPS of 44 sen was proposed, bringing its 12MFY17 DPS to 61 sen. This translates into a decent dividend yield of 4.3% and a dividend payout of 50%, above our forecasted payout of 40%.
“We believe the dividend payout is sustainable; as such, we revise up our dividend forecast assumptions (from 40% payout to 50% payout) for FY17-19F,” it said.
The research house also pointed out that under the Incentive Based Regulation (IBR) framework regulatory period 1 (RP1, 201417), Tenaga’s return on its transmission and distribution (T&D) assets is 7.5%.
However, its actual average tariff is about 2% higher than the base tariff set by the IBR due to higher electricity consumption by the commercial sector.
As such, when the regulator revises the IBR parameters for RP2 starting in 2018, the allowable return may be lowered and we see potential earnings risk as it may no longer enjoy the additional 2% tariff.
“Nevertheless, assuming Tenaga is only allowed to earn a 6.5% return (its WACC, based on our estimates) on its T&D assets and the 2% mark-up in tariff is entirely removed, we estimate that Tenaga’s net profit could be lowered by as much as RM1bn per annnum.
“This, plus the risk of a higher effective tax rate, may lead to a RM2bn reduction in Tenaga’s annual net profit. However, even if all these risks materialise, Tenaga would trade at 16 times FY19F P/E, below PetGas’s 17 times, Malakoff’s 26 times and Gas Malaysia’s 20 times.
“Maintain Add with an unchanged RM15.70 target price. Tenaga’s year-to-date share price performance of +4.3% lagged behind KLCI’s +8.8% return due to uncertainty from the upcoming tariff review (RP2).
“We believe the current undemanding valuation has largely priced in the negatives.
“It trades at 11 times FY18F P/E, making it the cheapest big-cap utility stock in our coverage. The sector’s average FY18F P/E is around 14 times.
“Key downside risk is a sell-down of Malaysian equities as Tenaga is often seen as a proxy for the Malaysian stock market,” it said.
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