Stock Focus Tenaga rises 1% after 1Q earnings beat forecast, prompts upgrades

by **Cals** Fri 24 Jan 2014, 16:28

Stock Focus Tenaga rises 1% after 1Q earnings beat forecast, prompts upgrades

Business & Markets 2014

Written by Chong Jin Hun of theedgemalaysia.com

Friday, 24 January 2014 13:28

KUALA LUMPUR (Jan 24): Tenaga Nasional Bhd rose as much as 0.9% after the state-controlled utility company reported first quarter results which beat market expectation.

This has prompted upgrade on the company by analysts.

At 12.30pm, Tenaga settled at RM11.52 with some 4.3 million shares done. The stock had earlier gained as much as 10 sen or 0.9% to RM11.60.

Tenaga said yesterday its net profit rose 22% to RM1.73 billion in the first quarter ended November 30, 2013 (1QFY14) from RM1.42 billion a year earlier. Revenue increased to RM9.59 billion from RM9.13 billion.

Today, RHB Research Institute Sdn Bhd analyst Kong Heng Siong said the firm has upgraded its target price (TP) for Tenaga to RM13.24 from RM11.90. This comes with an unchanged "buy" call.

In a note today, Kong said the TP upgrade follows an upward revision in RHB's core earnings forecast for Tenaga by 9.2% and 9.7% in FY14 and FY15 respectively.

"(It is a ) spectacular start to the year," Kong said.

RHB has revised its core earnings forecast for Tenaga after the company's core earnings of RM1.2 billion beat consensus and RHB's estimates at 24.5% and 26.5% of full-year forecast respectively.

According to Kong, RHB's computation of Tenaga's core earnings has excluded fuel expenses of RM130 million provided for 4QFY13 and positive taxation.

Meanwhile, Hong Leong Investment Bank Bhd analyst Daniel Wong said Tenaga's 1QFY14 core earnings of RM1.05 billion was "within expectations" at 24.2% and 22.4% of Hong Leong's and consensus full-year forecast respectively.

The core earnings excluded fuel compensation and deferred tax gains, according to Wong.

"Despite higher usage of LNG (liquified natural gas) (average price at RM45/mmbtu), EBITDA margin still improved slightly mainly due to lower IPPs (independent power producer) payments, from unplanned shutdown of Tanjung Bin and Jimah coal power plant.

"Management was unable to provide guidance on the shutdown period of these coal plants, suggesting continuous usage of higher priced LNG. The average fuel cost for LNG is at 40 sen/kWh vs coal at 11 sen/kWh," Wong said.

Hong Leong has maintained its "buy" call for Tenaga shares with a target TP of RM13.15.

Alliance Research Sdn Bhd analyst Jeremy Goh said the firm has increased its FY14 earnings estimate for Tenaga by 6.5% "to capture the effect of the lower effective tax rate witnessed in 1Q".

In a note today, Goh said the earnings upgrade leads to a higher TP of RM13.24 for Tenaga. This compares with RM13 previously.

"We maintain our BUY rating on Tenaga as we believe that the current traction of industry reforms will continue to set it on a structural rerating path," Goh said.