Tenaga Nasional results below forecasts, says Maybank Research

KUALA LUMPUR: Tenaga Nasional’s 9M18 results were below expectations, says Maybank Investment Bank Research as it retained it Hold call with a lower target price of RM15.60 from RM16.

It said on Wednesday it had accounted for the non-recurring “excess tariff” from RP1’s improved demand mix, but had not factored in RP2 reference gas price hikes. Our earnings forecasts are now recalibrated lower. 

Tenaga shifted its financial year-end from August to December in 2017, thus on-year comparisons are not available. 

The 3Q18 core net profit (ex-forex) of RM676mil (-52% on-quarter) brings 9M18 core net profit to RM4.12bil, 63%/58% of its/consensus full-year forecasts. 

“The variance was due to us not having incorporated the step-up in reference gas prices for 2H18, further associate/JV losses and higher-than-expected taxes. 

“The 3Q18 non-fuel costs trended higher sequentially, and included another RM292m impairment charge for Turkey associate Gama Enerji (now fully impaired),” it said. 

Maybank Research said the main contention in the results call was the seemingly “insufficient” ICPT adjustment (RM 480m credit to revenue) in 3Q18. 

Now after the fact, this is likely due to the reference gas price hikes embedded in RP2 base tariff (by RM1.50/mmBTU each in 2H18 and 1H19). 

Reference generation cost would thus have increased sequentially, resulting in lower cost under-recoveries, all else equal. 

In RP1, a single reference gas price was used, thus higher gas costs from price hikes were passed on. 

“We lower our FY18/19/20 net profit forecasts by 14%/13%/11% as we incorporate the two step-ups in reference gas prices, and reflect latest run-rates for costs, associate/JV losses and taxes. 

“Our DCF-based TP (assuming 7.5% WACC and 1% long-term growth) is lowered to RM 15.60 (from RM16) in tandem with our 2%-4% EBITDA cuts. 

“The earnings step-down in RP2 has now played out. Next up, a possible PER expansion should doubts over the pass-through mechanism dissipate,” it said.

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