AmResearch maintains Buy on Tenaga Monday, 3 November 2014

by **Cals** Mon 03 Nov 2014, 10:08

AmResearch maintains Buy on Tenaga

Monday, 3 November 2014

KUALA LUMPUR: AmResearch has maintained its Buy on Tenaga with an unchanged DCF-derived fair value of RM15.00/share, which implies an unchanged FY15F PE of 15 times and a P/BV of 2.1 times.

"We have fine-tuned our Tenaga’s FY15F-FY16F earnings but maintain our coal cost assumption of US$85/tonne even though prices are currently well below US$70/tonne, as the biannual tariff review will adjust for the fuel cost differential," it said in a note on Monday.

AmResearch said its electricity demand growth forecast is maintained at 3% on expectations of stronger economic growth, even though Tenaga had achieved a unit increase of only 2.5% in FY14.

"We introduce FY17F earnings with a 6% earnings growth, cruising on a steady 3% electricity demand growth.

"Tenaga’s FY14 core pretax profit of RM6.319bil came in within our and street’s expectations. But Tenaga’s core net profit in comparison with street’s estimates are skewed by Tenaga’s prior year adjustments for reinvestment allowances of RM662mil for FY13-FY14," it said.

Tenaga declared a 4QFY14 dividend of 19 sen, which raised FY14 DPS by 4 sen to 29 sen, representing 58% of the group’s free cashflow.

"Management indicated that there remains a shortfall in the new tariff structure of up to RM600mil in FY14 due to the higher price of liquefied natural gas.

"If the regulatory bodies allow these additional costs to be recouped from higher tariffs or savings from the extensions of the first generation power plants, there will be an 8% boost to FY15F earnings," it said.