Friday, October 15, 2010

Tenaga TNB – A decent 4QFY10 expected Outperform

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- TNB is expected to release its 4QFY10 results on 28 Oct. Based on the CEO’s recent comment that FY10 electricity demand growth could range between 8-9% yoy, we estimate 4Q core net profit could come in at around RM600-650m (3Q10 core net profit: RM534m; 4Q09: RM407m).

- This would bring full-year core net profit to around 93-94.5% of our full-year net profit forecast and around 94-96% of consensus estimates. We believe the key variance would largely be due to electricity unit sales, where we had assumed FY10 demand growth of +10% yoy.

- We estimate 4QFY10 electricity unit sales for Pen. Malaysia slowed to around +5.5% yoy and +2% qoq, vs.
+13.7% yoy and +3.7% qoq in 3QFY10. This slowdown, we believe, would largely be due to the industrial segment. Overall, we expect 4Q10 topline to post qoq and yoy growth of 1.5-2% and 5-5.5% respectively.

- 4Q operating cost is expected to remain stable qoq and yoy, notwithstanding higher US$-denominated coal cost, which would be mitigated by a stronger RM as well as the absence of lumpy provisioning.

- We expect TNB to declare a final gross DPS of 21 sen (4QFY09: gross DPS of 13.1 sen), which would bring the full-year gross DPS to 27 sen (FY09: 17.8 sen).

- FY10-12 net profit projections lowered by 3.9-4.5% after we lowered our FY10 electricity demand growt has sumption to +8.5% (+10% previously). FY11 and FY12 assumptions of +4.5% p.a. are unchanged.

- Fair value lowered to RM10.30 from RM10.80, based on unchanged target CY11 PER of 13x but Outperform call on the stock is unchanged.

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