Tenaga ... Feb12

ZJ Research Report

1QFY12 Results Review
• Tenaga Nasional Bhd (TNB)’s 1QFY12 net loss narrowed to RM224.7 mln from a loss of RM453.9 mln in 4QFY11 and RM440.2 mln in 3QFY11. However, after excluding the foreign translation loss of RM419.1 mln, the Group actually returned to the black with a core net profit of RM194.4 mln, vs. a core net loss of RM119.3 mln in 4QFY11. While 1QFY12 core net profit constitutes only approximately 10% of our FY12 projection, we consider the results to be broadly in line with our expectations as we anticipate a better performance in 2HFY12, given the expected lower use of alternative fuels going forward.

• 1QFY12 revenue rose 12.5% y-o-y to RM7.73 bln due to the tariff hike (effective 1 June 2011) and higher electricity sales, which registered a 3.9% y-o-y unit electricity demand growth in Peninsular Malaysia. EBITDA nevertheless, fell 40.4% y-o-y as opex escalated 29.5% y-o-y mainly on higher generation costs. TNB incurred an additional RM1.6 bln on fuel costs and IPP payments in 1QFY12 compared to 1QFY11 as a result of the gas supply issues. As such, EBITDA margin shrunk to 15.1% in the quarter under review from 28.5% a year ago.

• On a brighter note, gas supply to TNB and the IPPs may see an increase of 70 mmscfd to 1,120 mmscfd from the current 1,050 mmscfd level as we understand Petronas is trying to source additional gas supply from Thailand. We note though, that at 1,120 mmscfd, it is still below the optimal level of 1,350 mmscfd and the critical level of 1,150 mmscfd. We reckon the issue of gas supply will only ease towards the end of 2012 when the LNG re-gasification plant in Malacca commences operations.

• On another positive development, the Group has secured RM2 bln in compensation from the Government to subsidize the fuel costs incurred. So far, it has received RM1 bln, and expects to receive the other RM1 bln in February 2012.

• Against this backdrop, we retain our view that TNB’s FY12 performance would be better and
maintain our existing FY12 and FY13 net profit estimates of RM2.2 bln and RM2.4 bln
respectively.

• On the corporate front, CEO Dato Che Khalib announced he will step down from his post when his contract ends in June 2012. TNB is currently seeking a suitable replacement, and expects to announce the appointment of the new CEO in April 2012.

Recommendation
We continue to maintain our Hold call on Tenaga at this juncture with an unchanged DCF-derived fair
value of RM6.40. We opine that while much of the negative news have already been priced in, there is
lack of clear earnings growth catalysts at this juncture in the absence of a full cost pass-through
mechanism, coupled with the uncertain macroeconomic environment that may impact our domestic
demand for electricity. Given that the general election may be imminent, any electricity tariff hike is
unlikely to take place anytime soon too, in our opinion.