TENAGA–Fundamental Analysis (28 Apr 2016)

Excel – Download the analysis file

Latest Financial – Q2 2016 Financial Report (27 Apr 2016)

FY16 Q2 Results Highlight:

  • Tenaga reported 2QFY16 core net profit of RM1.5b (normalised for translation losses of RM235m), which brought 1HFY16 core earnings to RM3.5b. (MIDF 28 Apr 2016)
    • Electricity unit sales in 2QFY16 grew some 4%yoy, much stronger than 1QFY16’s +3.2%yoy and the 2.2% – 2.5% growth seen in the past two financial years. Revenue from Tenaga’s electricity sale grew by a stronger 5%yoy given a higher average tariff achieved at 39.28sen/kwH (+1%yoy).
    • Demand growth was largely driven by the commercial (+6.1%yoy) and residential (+12%yoy) segments while the industrial segment was down slightly (-1.4%yoy). The commercial and residential segments account for 58% of total electricity demand.
  • However, 2QFY16 core net earnings grew by a slower 1.3%yoy (+3.3%ytd) (after normalising 2QFY15 for ICPT over-recovery of RM981m) as margins were impacted by higher fuel cost, i.e. higher subsidised piped gas price (which was increased 9% from RM16.70/mmbtu to RM18.20/mmbtu from Jan 2016 given a subsidy rollback), and higher effective coal price (+5.5%ytd) – which was mainly due to the weaker Ringgit. Underlying USD denominated coal cost actually reduced 16%. These fuel cost volatility is likely to be taken into account in the next ICPT review for 2HCY16.

Valuation:

TENAGA-FY16Q2-Football-Field

In my opinion, fair value of TENAGA range from 15.8 to 17.2. The uncertainty risk of fair value is from MEDIUM to HIGH.

Going Forward:

Main catalysts:

  1. Strong earnings visibility post-ICPT implementation
  2. Overseas expansion provides scope for stronger growth in the mid-term
  3. The prolonged heatwave hitting the country currently provides a temporary boost to demand

(FFO – Dividends) / Debt in FY15 was 36% which is above global industry average (35%). I think TENAGA should consider to increase its dividend payout in view of its strong cash position.

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

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

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