Lower coal price benefits TNB

Lower coal price benefits TNB
Business & Markets 2013
Written by theedgemalaysia.com
Monday, 22 April 2013 10:45


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TENAGA NASIONAL BHD []
(April 19, RM7.90)
Maintain buy at RM7.95 with a target price of RM8.20: TNB reported a solid second quarter 2013 financial year (2QFY13) net profit of RM1.3 billion including a foreign exchange translation gain of RM388.6 million.

Its core net profit grew to RM883.5 billion in 2QFY13 from RM669.8 million in 2QFY12 (+32.0% year-on-year [y-o-y]; -13.2% quarter-on-quarter [q-o-q]).

The increase in core earnings is attributable to: i) 5.8% growth in power demand; ii) 0.9% lower operating expenditure as it benefitted from the lower coal price of US$84.70 (RM257) per tonne (1QFY13: US$84.4 per tonne); and iii) strengthening of the ringgit against yen (+9.1% y-o-y) and US dollar (+1.2% y-o-y).

Cumulative core net profit for the first half of 2013 financial year (1HFY13) was RM1.9 billion (+28.7 y-o-y), in line with both our and consensus numbers, constituting 31% and 27% of full year forecasts, respectively. If the earnings momentum continues in the second half, TNB is likely to meet the forecasts.

TNB declared an interim dividend per share (DPS) of 10 sen (2QFY12:5.1 sen). This implies a 53% payout of free cash flow and 44% of our FY13 forecast DPS.

TNB’s power demand growth rose by 4.6% y-o-y in 2HFY13 led by the commercial (+5.4% y-o-y) and domestic (+7.1% y-o-y) sectors.

Meanwhile, demand from the industrial sector slowed down to +2.6% y-o-y. Management retained its FY13 electricity demand growth forecast of 4% to 5% (2QFY13:5.8%; 1QFY13: 3.5%). Our electricity demand growth projection for FY13 is pegged at 4.5%, given our house view of FY13 forecast RGDP growth of 5.8% (FY12 RGDP: 5.6%).

Coal price has been easing and is now trading at about US$88 per tonne. It averaged US$90.80 per tonne in TNB’s 1HFY13. Management reiterated their expectation that the average coal price for FY13f will be less than US$100 per tonne. We expect coal prices to remain depressed due to softer demand from China amid abundant coal supply.

Hence, we are maintaining our FY13f and FY14f average coal price of US$95 and US$100 per tonne. TNB sources its coal supply from Indonesia (67%), Australia (19%), South Africa (12%) and Russia (2%).

TNB’s total debt outstanding as at end-February 2013 was RM21.7 billion. The appreciation of the ringgit has helped reduce its yen- and US dollar-denominated debt exposure by 2.9 percentage points to 19.8% and 0.3 percentage points to 12.7%, respectively. TNB’s cash pile is RM7.9 billion as at end-February 2013, translating into RM1.37 per share. Meanwhile, foreign shareholding is at 18.7% in March 2013, rising strongly by 3.7 percentage points from 15.0% in December 2012.

TNB had submitted its incentive based regulation (IBR) proposal in August 2012 to the Energy Commission (EC). However, management informed that discussions with EC are still on-going and the final decision is expected by August this year. Note that the implementation of IBR will allow TNB to: i) recover some revenue (we presume from the government) for having met its key performance indicators; ii) generate returns equal to its regulatory weighted average cost of capital and; and iii) recover fuel costs due to changes in price via stabilisation fund. — MIDF Research, April 19



This article first appeared in The Edge Financial Daily, on April 22, 2013.