Tenaga will no longer enjoy the benefit of higher average base tariffs from changes in customer mix under regulatory period 2 (RP2) as the Distribution Network is now under a revenue cap instead of a price cap.
KUALA LUMPUR: Tenaga Nasional’s first quarter (Q1 FY19) results were ahead of expectations but this could be due to timing, Maybank Kim Eng research says.
“We think the YTD share price correction is unwarranted, with industry reforms possibly having a relatively muted impact on Tenaga’s profitability. Reiterate buy with an unchanged RM15.50 target price,” it said on Wednesday.
The research house said 1Q19 core net profit of RM1.627mil (-20% YoY, +99% QoQ) represents 29% of both its/consensus full-year forecasts respectively.
MFRS 16 raised EBITDA by RM1.09bil and net profit by RM23mil in the quarter. It appears there are further adjustments to be made, with management still guiding for MFRS 16 to eventually lower 2019 net profit by RM300mil.
“Separately, headline net profit included a further RM334mil impairment charge on its Turkish and Indian associates (Gama and GMR). Management still intends to pursue international opportunities in future,” it said.
Maybank Research said the P&L ICPT adjustment of RM1.37bil represented a further increase from the RM971mil in 4Q18.
Nevertheless, 1Q19 likely reflects the peaking of coal prices; it thus expect the cost under-recovery to taper in 2Q19.
Separately, Tenaga has now begun to reverse “excess revenue” (for P&L recognition) on a monthly basis (1Q19: revenue reversal of RM524m). This would reduce the quarterly earnings volatility going forward.
“Our earnings forecasts and TP are unchanged. We have yet to incorporate the effects of MFRS 16 into our forecasts (impact is non-cash) given the likelihood of further adjustments in upcoming quarters.
“Our RM15.50 TP is based on a DCF, assuming 7.5% WACC and 1% long-term growth. Tenaga also offers a relatively attractive dividend yield of high 4% (based on a 55% payout ratio),” it said.
Limited time offer:
Just RM5 per month.
