TENAGA (5347) : Tenaga Nasional - Better outlook ahead
Target RM15.92 (Stock Rating: ADD)
We are still concerned about Tenaga's long-term outlook, given the FCPT implementation uncertainty. However, we think that Tenaga’s near-term earnings outlook is improving, underpinned by lower fuel costs. Furthermore, the likely resolution of IPP coal power plant issues this year and commencement of its own coal power plant in Mar, which would reduce its reliance on natural gas, are potential catalysts. Given the current jittery market conditions, we think that Tenaga's stable earnings outlook will stand out and result in re-rating. We raise our target price for Tenaga to RM15.92, based on 15x FY15 P/E (implied target CY15 P/E for the market), and upgrade from Hold to Add.
What Happened
During the 1QFY8/15, Tenaga's gas use continued its decline as per the last quarter, declining by 12% as compared to the 3QFY8/14 when its gas use peaked. The lower gas usage implies that Tenaga’s coal power generation improved in 1QFY8/15, as the coal power plants gradually came on stream. Given the lower usage of gas during the quarter, we believe that Tenaga will post strong yoy and qoq improvement in 1QFY8/15 net profit. Tenaga’s results are expected to be released on 22 Jan 2015.
What We Think
We think that Tenaga's near-term earnings outlook is stable, despite the lack of tariff hikes, because of: 1) the improvement in coal usage arising from the power plants’ recovery, 2) Tenaga's own coal-fired power plant, Manjung 4, coming on stream by Mar 2015, and 3) the weaker liquefied natural gas (LNG) and coal prices, which would give Tenaga breathing room in terms of fuel costs. Nonetheless, we maintain our view that the fuel cost pass-through (FCPT) mechanism must be put firmly in place to protect its earnings in the longer term. We believe that the FCPT could be revived, as the low fuel costs currently may result in Tenaga lowering its tariff and thus, passing on cost savings to the public.
What You Should Do
Investors should Buy Tenaga. Given the improved near-term earnings outlook and jittery market conditions, we think that Tenaga will post positive share price performance in the next 3-6 months, as investors seek stable earnings after the rout of oil and gas stocks. Thus, we upgrade our rating on Tenaga from Hold to Add.
Source: CIMB Daybreak - 14 January 2015
Target RM15.92 (Stock Rating: ADD)
We are still concerned about Tenaga's long-term outlook, given the FCPT implementation uncertainty. However, we think that Tenaga’s near-term earnings outlook is improving, underpinned by lower fuel costs. Furthermore, the likely resolution of IPP coal power plant issues this year and commencement of its own coal power plant in Mar, which would reduce its reliance on natural gas, are potential catalysts. Given the current jittery market conditions, we think that Tenaga's stable earnings outlook will stand out and result in re-rating. We raise our target price for Tenaga to RM15.92, based on 15x FY15 P/E (implied target CY15 P/E for the market), and upgrade from Hold to Add.
What Happened
During the 1QFY8/15, Tenaga's gas use continued its decline as per the last quarter, declining by 12% as compared to the 3QFY8/14 when its gas use peaked. The lower gas usage implies that Tenaga’s coal power generation improved in 1QFY8/15, as the coal power plants gradually came on stream. Given the lower usage of gas during the quarter, we believe that Tenaga will post strong yoy and qoq improvement in 1QFY8/15 net profit. Tenaga’s results are expected to be released on 22 Jan 2015.
What We Think
We think that Tenaga's near-term earnings outlook is stable, despite the lack of tariff hikes, because of: 1) the improvement in coal usage arising from the power plants’ recovery, 2) Tenaga's own coal-fired power plant, Manjung 4, coming on stream by Mar 2015, and 3) the weaker liquefied natural gas (LNG) and coal prices, which would give Tenaga breathing room in terms of fuel costs. Nonetheless, we maintain our view that the fuel cost pass-through (FCPT) mechanism must be put firmly in place to protect its earnings in the longer term. We believe that the FCPT could be revived, as the low fuel costs currently may result in Tenaga lowering its tariff and thus, passing on cost savings to the public.
What You Should Do
Investors should Buy Tenaga. Given the improved near-term earnings outlook and jittery market conditions, we think that Tenaga will post positive share price performance in the next 3-6 months, as investors seek stable earnings after the rout of oil and gas stocks. Thus, we upgrade our rating on Tenaga from Hold to Add.
Source: CIMB Daybreak - 14 January 2015
