TENAGA–Fundamental Analysis (30 Oct 2015)

Fundamental Analysis as of FY15 – http://www.slideshare.net/lcchong76/tenaga-fundamental-analysis-fy15

Excel – http://1drv.ms/1RDsY1q

Latest Financial – Q4 2015 Financial Report (29 Oct 2015) http://www.bursamalaysia.com/market/listed-companies/company-announcements/4905761

FY15 Q4 Results Highlight:

  • 4QFY15 net profit (ex-forex) of MYR1.58b (+4% YoY, +116% QoQ) brings FY15 net profit (ex-forex) to MYR7.05b (+30% YoY).
  • The higher sales can be attributed to higher average electricity tariff of 15% and 17% in Peninsular Malaysia and Sabah, respectively, effective Jan 2014. The topline also includes cost overrecovery of RM1.9bil under the Imbalance Cost Pass Through (ICPT) mechanism. TNB’s EBITDA margins had improved to 32% (vs. 28% in FY14)
  • Management reported the fuel cost over-recovery for 4QFY15 at just MYR34m, as the 2.25sen/kWh tariff rebate was in place, and oil and distillates usage also increased.

Valuation:

  • Absolute EY%:
  • Trailing:
    • FY15 (EPS: 0.756) – 13.720 (Uncertainty Risk: HIGH)
  • Forward:
  • FY16 (EPS: 1.195 ± 5%) – From 20.611 to 22.780 (Uncertainty Risk: LOW)
  • FY17 (EPS: 1.251 ± 5%) – From 21.574 to 23.845 (Uncertainty Risk: LOW)
  • EPS applied to reach the current stock price (12.62): 0.695
  • Fair value based on FY15 is lower because I excluded one unusual transaction:
    • During the financial year under review, the Group recognised the over-recovery of costs under the Imbalance Cost Past Through (‘ICPT’) mechanism, for the period from January 2014 until August 2015 amounting to RM1,854.5 million.
  • In my opinion, fair value of TENAGA range from 22 to 23.
  • Going Forward:

    30 Oct 2015 – FY15 electricity generation was likely lower than budgeted given the weaker-than-projected demand (+2.2% YoY) and the record low system loss. This led to better-than-expected generation mix (coal was up, to 45.6% from 39.8% in FY14), hence the earnings beat. If system loss continues to remain below trend, TNB would be able to deliver earnings growth in FY16

    Positive on TNB’s earnings outlook given the easing trend in fuel costs due to the decline in coal and gas prices

    The implementation of FCPT mechanism remains as TNB’s secular catalyst in order to justify an even higher future valuation as it will definitely provide a greater clarity and stability to TNB’s long term earnings

    30 Oct 2015 – While TNB’s existing operating prospects remain sound, concerns remain over its possible acquisition of Edra Global’s assets.

    I will continue to hold this share, and accumulate it.

    At the time of writing, I owned shares of TENAGA.

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