Tenaga Nasioanl - Gas supply to stabilise with Petronas’ deal with Keppel BUY

By Am Research
23 Apr 2012

- We reiterate our BUY call on Tenaga Nasional, with an unchanged DCF-derived fair value of RM7.35/share, which implies a CY12F PE of 13x and a P/BV of 1.1x.

- Petroliam Nasional (Petronas) has signed an agreement to increase its supply of natural gas to Keppel Corporation’s wholly-owned Keppel Energy by 43 million cubic feet of gas per day (mmscfd) to 115 mmscfd.

- Under the 18-year agreement, Petronas will supply the gas through a new 5-kilometre pipeline that will link its peninsular gas utilisation (PGU) pipeline from a metering station at Plentong in Johor to Singapore's main gas network. Petronas Gas and Keppel Gas will jointly build the pipeline, which is scheduled for completion by the middle of next year. The gas will be used to power Keppel Energy’s 500 megawatt cogeneration plant currently under construction on Jurong Island.

- Recall that Tenaga has been suffering from a natural gas shortfall since early last year due to Petronas’ unscheduled upstream maintenance works, which at one point forced Tenaga to temporarily purchase electricity from YTL Power’s Singapore-based Power Seraya plant. But this sale to Keppel underpins our confidence that Petronas’ gas supply issues should be fully alleviated with the 500mmscfd Lekas re-gassification plant in Malacca, which commences operation in August this year. Out of this capacity, 200mmscfd will be supplied to the power sector.

- We remain positive on Tenaga due to:- (1) Stabilising natural gas supply will provide clearer earnings visibility, (2) Falling global coal and US-based natural gas prices, which will positively transform the company’s cost structure. A US$10/tonne decrease in coal costs will raise FY13F net profit by 14%, (3) Likelihood that Petronas and the government will continue to bear the higher liquefied natural  gas costs from the Malacca regassification plant in the near term (due to political factors), which could mitigate further fuel cost pressures, (4) New plant-ups to replace the first generation independent power producers, with expiring power purchase agreements likely to reduce capacity payments. In an open tender environment with Tenaga as the bidder and sole off-taker, fixed power purchase costs are likely to decline.

- The stock currently trades at a P/BV of 1x, at the lower range of 1x-2.6x over the past 5 years. Earnings-wise, Tenaga offers an attractive CY12F PE of 11x compared with the stock’s three-year average band of 10x-16x.

Price: RM6.52

Fair Value: RM7.35

[Source]

TENAGA- OUTPERFORM

By Kenanga Research

9 Apr 2012

We expect Tenaga Nasional’s (Tenaga) 2Q12 core earnings to surge 138% QoQ to RM438m on the back of a better gas supply, lower coal cost, high hydro power usage and manageable unit demand. Its 1H11 estimated core earnings of RM622m should be within our projection but could be below market (possibly due to distortions caused by one-offs). Tenaga has also gotten its full RM2.0b compensations in 2Q12. Coupled with RM550m in non-cash FOREX gains, 2Q12 reported net profit should be RM2.49b. There is no change to our FY12E core earnings of RM1.21b pending gas supply issue clarity from management. We continue to advise investors to take a 6-9 month view on the stock as FY13E should see improved gas supply and thus, lower fuel cost. We are also banking on meaningful tariff revisions post GE, since neither Tenaga nor the government can continue to bear the heavy fuel subsidy burdens. We reiterate OUTPERFORM recommendation and TP of RM7.31, based on peak 19x Fwd PER* on its average FY12-13E core EPS.

We are expecting 2Q12 core earnings of RM438m (+138% QoQ), which is a significant improvement from last quarter, because of much lower MFO/diesel usage due to 1) 2Q12 gas supply was slightly above 1Q12’s 1050mmscfd; 2) high hydro power usage due to rainy season; 3) coal cost was lower QoQ and 4) 2Q12 unit demand to be lower than 1Q11 due to the festivities period and short Feb-2012. For FY12E, lower demand will result in higher earnings as shortage of gas supply will be met by the more expensive MFO/diesel usage. However, 1H12 core earnings of RM622m would still be a 51% decline YoY as 1H11 had a better gas supply and generation mix. Going forward, we expect Tenaga to see better gas supply of >1100mmscfd if PETRONAS can secure an additional 70mmscfd from the Thailand JDA. 

1H12 core earnings of RM622m should be within our estimate of FY12E core earnings of RM1.21b. However, it may come in below market expectations as the street’s FY12E  core earnings of RM2.34b may be distorted by inclusion of the RM2.0b compensations in core earnings.  We maintain our estimates for now pending clarity on the 2H12 gas supply situation. 

Full RM2.0b compensations are in Tenaga’s books now, which has been imputed in our FY12E reported net profit as a one-off item; note that the RM2.0b is subject to corporate tax. Tenaga has gotten the final payment of RM1.0b from PETRONAS in Feb-12. Inclusive of non-cash FOREX gains of RM550m in 2Q12 (on the back of USD and JPY depreciating against the RM by 6% and 9% QoQ), we expect a  2Q12 reported net profit of RM2.49b. 1H12 reported net profit will be lower at RM2.26b due to FOREX losses in 1Q12. 

Coal cost trending downwards, but Tenaga will maintain FY12E estimate of USD110/mt. We estimate 2Q12 coal cost of USD107/mT vs. 1Q12’s USD110/mT. Management is likely to maintain its and our FY12E assumed cost of USD110/mT. According to management, they do not expect potential Indonesia export tax on coal to affect its FY12E guidance since coal prices have started trending downwards.

5M12 Peninsular unit demand registers growth of 4.4%.  We continue  to assume FY12E Peninsular unit demand of 4.0% as we expect demands to cool-off in 2H12. If unit demand points to higher levels, there will be further downside to our FY12E core earnings of RM1.21b (+233% YoY), which we are maintaining for the 

moment.

Price: RM6.49

Target price: RM7.31

[Source]

TENAGA: CFO calls it a day

By OSK research
6 Apr 2012

In a Bursa announcement, Tenaga Nasional (TNB) announced that its Chief Financial
Officer (CFO),  Mohamed Rafique Merican bin Mohd Wahiduddin Merican, 47, has
resigned to pursue better opportunities and career advancement.


A surprise. This piece of news took us by surprise as we had not heard any rumours of
En Rafique leaving. Meanwhile, a corporate day being organized by TNB for investors in
May could be affected by this development.


Appears to be an amicable parting of ways. As far as we understand, there are no
negative developments surrounding En Rafique’s departure. We  also  understand that
management has  already  begun the search for a replacement.  During  En Rafique’s
tenure, TNB continued to pare down its debts despite facing numerous headwinds. At
this juncture, we believe  that there will be minimal disruption to TNB’s activities given
that  all  standard operating procedures should  be in place  at  this  long  established
Government Linked Company (GLC).


Coal tax conundrum. Sentiment  in the company  has been slightly  doused of late in
view of recent rumours that Indonesia may be slapping a 25% export tax on coal, which
stoked fears of a price hike in coal. While we do see some rationale for an export tax on
mining ores, we see no justification for a coal export tax as there is limited capacity for
local upgrading  of coal  or value adding in Indonesia prior to export. We believe  that
various parties, including miners and importers, will lobby hard to have this tax reduced
or postponed. For now, we maintain our coal cost assumption of USD110 per tonne for
FY12 and FY13.


Maintain BUY. While some  parties  may choose to read more than is justified in the
resignation of the CFO, particularly given the  upcoming departure of CEO Datuk Seri
Che Khalib  - who has chosen not to renew his contract when it expires in June, we
believe that a leading GLC like TNB will keep its operations intact. As such, any short 
term share price weakness should be viewed as an opportunity to accumulate the 
shares. We maintain our earnings forecast and call, pending further clarification  from
TNB’s upcoming results briefing on 12 April.

OSK valuation:
Fair value- RM7.68
Previous- RM7.68
Price- RM6.48

[Source]

By Maybank IB research
6 Apr 2012

Maintain Buy, business is good. Despite this negative surprise, we
maintain our  positive stance as we believe Tenaga’s past gremlins
have been successfully eradicated. Natural gas supply has improved
since 2012, coal prices have been trending lower and the demand for
power is very strong at 4%-5% growth. Furthermore, we understand
that Tenaga has already received  its  RM2.0b of the cost sharing 
agreement with the Government and PETRONAS in 2QFY12.  Any
near-term stock price decline is a great opportunity to accumulate.

Maybank IB valuation:
Share price- RM6.48
Target price- RM6.90

[Source]

By HLIB Research

6 Apr 2012

TNB (HOLD)

Target price- RM6.54

2Q12 to Show Profits

• Improved natural gas supply to the sector, stable coal power generation as well as seasonally lower power demand in 2Q12, had reduced reliance on alternative fuels and lowered overall fuel cost to TNB.
• TNB had received total RM2bn fuel compensation from Government and Petronas in Feb 2012, and will be recognised as an EI item. Note that the amount is taxable at 25%.
• Additionally TNB will recognise another RM660m forex translation gain due to appreciation of MYR against US$ and JP¥.
• Expect TNB to report 2Q12 net profits of RM2.7bn and core profits of RM550m.
• However, we believe TNB will revert back to alternative fuels as power demand is expected to peak in Apr-Aug period, while being hit by seasonally lower hydropower generation.
• Maintain Hold on TNB with Target Price of RM6.54.