PublicInvest raises target price on TNB on earnings stability

KUALA LUMPUR: PublicInvest Research has raised its target price on Tenaga Nasional Bhd (TNB) to RM15.55, to reflect the group’s earnings visibility and stability. 

The research house also reaffirmed its Outperform call on TNB, in a note on Thursday. 

Although TNB posted a 4.2% increase in sales of electricity, revenue for the first half of 2016 fell 2.2% year-on-year due to recognition of an Imbalance Cost Pass-Through (ICPT) over-recovery amounting to RM1.3bil versus non-recognition of ICPT adjustment in the previous corresponding period. 

Imputation of ICPT into TNB’s financial records only started in 3Q15. First half 2016 revenue came in at RM21.2bil compared to RM21.6bil a year ago, which is in line with PublicInvest Research and consensus’ estimates at about 46% and 47% of full year forecasts respectively. 

Stripping out forex losses, core net profit of RM3.5bil was within the research house’s expectations at 51% but slightly exceeded consensus’ forecast at 54%. 

Although reported net profit fell 26.9% year-on-year, adjusted net profit increased by 2.3%. TNB declared an interim dividend of 10 sen for the quarter. 

For 2Q16, TNB’s revenue fell slightly due to ICPT over-recovery amounting to RM663.4mil despite better electricity sales. Total unit demand for electricity remained steady at 4% compared to 2.3% a year ago driven by higher demand from commercial and domestic sectors which grew by 6.1% and 12% respectively, compared with 3.1% and 2.1% in the same period last year. 

However, demand for industrial sector contracted by 1.4% versus 1.6% growth in 2Q15. 

For the first half of 2016, overall fuel costs increased by 1.6% year-on-year to RM7.5bil due to higher piped gas and coal prices. Average piped gas price was RM17.20 compared to RM15.20 last year. 

Cheaper coal prices at US$57.70/mt versus US$68.40/mt in the first half of 2015 did not translate into cheaper coal prices in ringgit terms due to depreciation of the Ringgit against the US dollar. 

Coal prices were at RM246/mt in the first half of 2016 versus RM233.20/mt last year. “With Tanjung Bin Energy (TBE) having commenced operations recently, we expect more coal-based generation moving forward. The Group estimates coal consumption for 2016 to be approximately 26.2m mt, an increase of 18% from 2015 mainly on additional capacity in TBE,” it said.