KUALA LUMPUR: Kenanga Research said Tenaga Nasional Bhd
's FYE Dec 2017 core earnings of RM2.04bil came in within expectation while the 21.41 sen net dividend per share declared in the shortened four-month financial period was higher than its estimate of 14.2 sen.
The four-month financial period was owing to a change in financial year-end from August to December.
Kenanga Research said TNM remains its top pick for the sector with an unchanged target price of RM17.17 a share based on 14.4x CY18E price-earnings, in line with its +1.5SD of 2-year moving average.
"TENAGA reported 1-month period in December for FYE Dec 2017 with core profit of RM567.0m for the accumulative current period to RM2.04b on the back of revenue of RM15.83b.
"On an annualised basis, core profit of RM6.11b was 1% marginally higher than RM6.07b recorded in FYE Aug 2017.
"Overall, profit margins for this 4-month period were fairly similar to last FYE Aug 2017 where EBITDA margin was maintained at 33% while pre-tax margin improved to 19% from 17% previously. However, effective tax rate was lower at 24% from 27% for the 12-month period," the research firm said in its morning note.
Kenanga Research said given the mbalance Cost Pass-Through (ICPT) framework that passes fuel cost risk to the end consumer, demand growth is the key to determining top-line growth, which will eventually flow through to bottom-lne.
However, it said the rising fuel cost environment raises the question whether TNB would be allowed to surcharge customers should the ICPT under-recovery situation persist as the availability of the power purchase agreement saving fund was below RM100mil at the end of 2017.
"We keep our FY18 estimates unchanged based on 2.1% demand growth assumption, while introducing FY19 forecast where earnings are expected to grow at 8% based on the same demand growth of 2.1%. Despite higher pay-out of 50% for this shortened period, we keep our dividend pay-out ratio of 40%.
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