TENAGA (5347) - Tenaga Nasional - Bring on the buzz
Target RM18.42 (Stock Rating: ADD)
We remain confident of Tenaga's earnings outlook after its conference call on Friday to clarify the recent tariff reduction. The tariff reduction is not actually a decrease in tariff but a rebate and hence, revenue is not affected. The rebate arises from total over-recovery amount of RM727m with respect to CY14 and would only apply to the 4-month period of Mar-Jun 2015, as there will be another review for Jul onwards. Thus, we maintain our FY15-17 EPS forecasts, as the rebate is earnings neutral. We retain our Add call and note that the recent share price weakness represents a good opportunity to accumulate Tenaga.
What Happened
Tenaga held a conference call on Friday evening to clarify the government’s recent announcement of a tariff reduction. The call was chaired by CEO Dato’ IR Azman Mohd, while CFO Mr Fazlur Rahman was present to provide clarification on the issue and field questions. The presentation was brief but the ensuing Q&A session occupied most of the hour-long call. Based on call, we gather that: 1) the tariff reduction takes the form of a rebate for customers and thus, Tenaga's average tariff would not be affected, 2) the rebate of 2.25 sen/kwh will only apply to the period of Mar-Jun 2015, while there is uncertainty about the next Jul-Dec 2015 period, 3) the rebate arises from the over-recovery amount of RM727m for CY14, and 4) the implementation of imbalance cost pass-through (ICPT or FCPT) is still on track.
What We Think
We maintain our view that Tenaga's earnings outlook will improve from now on, supported by the reduction in gas usage and concurrent increase in the usage of coal. The concerns about lower revenue due to the recent tariff reduction announcement are unfounded, as it takes the form of a rebate (and thus, will be booked under costs) that will be covered by the over-recovery amount of RM727m. Thus, Tenaga’s topline is still based on the average tariff of 38.5 sen/kwh. Furthermore, the rebate only applies to the period of Mar-Jun 2015. The tariff will be reviewed for the period of Jul-Dec 2015, as per the ICPT mechanism.
What You Should Do
We believe that the recent selldown of Tenaga shares presents an opportunity for investors to accumulate, as it is clear that Tenaga's earnings would not be affected by the tariff reduction. We maintain our Add call on the stock, with an unchanged target price of RM18.42.
Source: CIMB Daybreak - 16 February 2015
Target RM18.42 (Stock Rating: ADD)
We remain confident of Tenaga's earnings outlook after its conference call on Friday to clarify the recent tariff reduction. The tariff reduction is not actually a decrease in tariff but a rebate and hence, revenue is not affected. The rebate arises from total over-recovery amount of RM727m with respect to CY14 and would only apply to the 4-month period of Mar-Jun 2015, as there will be another review for Jul onwards. Thus, we maintain our FY15-17 EPS forecasts, as the rebate is earnings neutral. We retain our Add call and note that the recent share price weakness represents a good opportunity to accumulate Tenaga.
What Happened
Tenaga held a conference call on Friday evening to clarify the government’s recent announcement of a tariff reduction. The call was chaired by CEO Dato’ IR Azman Mohd, while CFO Mr Fazlur Rahman was present to provide clarification on the issue and field questions. The presentation was brief but the ensuing Q&A session occupied most of the hour-long call. Based on call, we gather that: 1) the tariff reduction takes the form of a rebate for customers and thus, Tenaga's average tariff would not be affected, 2) the rebate of 2.25 sen/kwh will only apply to the period of Mar-Jun 2015, while there is uncertainty about the next Jul-Dec 2015 period, 3) the rebate arises from the over-recovery amount of RM727m for CY14, and 4) the implementation of imbalance cost pass-through (ICPT or FCPT) is still on track.
What We Think
We maintain our view that Tenaga's earnings outlook will improve from now on, supported by the reduction in gas usage and concurrent increase in the usage of coal. The concerns about lower revenue due to the recent tariff reduction announcement are unfounded, as it takes the form of a rebate (and thus, will be booked under costs) that will be covered by the over-recovery amount of RM727m. Thus, Tenaga’s topline is still based on the average tariff of 38.5 sen/kwh. Furthermore, the rebate only applies to the period of Mar-Jun 2015. The tariff will be reviewed for the period of Jul-Dec 2015, as per the ICPT mechanism.
What You Should Do
We believe that the recent selldown of Tenaga shares presents an opportunity for investors to accumulate, as it is clear that Tenaga's earnings would not be affected by the tariff reduction. We maintain our Add call on the stock, with an unchanged target price of RM18.42.
Source: CIMB Daybreak - 16 February 2015
