PP 7767/09/2010(025354)

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

New s Upda te
4 March 2010
MARKET DATELINE

Tenaga Nasional Share Price

Fair Value
:
:
RM7.96
RM9.50
Tariff Decision Deferred, For Now Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (TENAGA; Code: 5347) Bloomberg: TNB MK

Net Adj net Core EPS Net
FYE Turnover Profit Profit# EPS# Growth PER C.EPS* P/NTA Gearing ROE GDY
Aug (RMm) (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%)
2009 28,785.6 917.9 2,157.1 49.8 -7.4 16.0 - 1.3 0.7 3.6 2.2
2010f 28,704.4 2,812.1 2,812.1 64.9 30.4 12.3 63.9 1.2 0.7 10.4 3.3
2011f 29,953.2 3,189.4 3,189.4 73.6 13.4 10.8 67.7 1.1 0.6 11.0 3.7
2012f 31,261.1 3,602.3 3,602.3 83.1 12.9 9.6 76.0 1.1 0.5 11.5 4.2
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC # Excl EI and forex * Consensus Based On IBES Estimates

♦ Tariff decision delayed. According to Business Times, the Government Issued Capital (m shares) 4,342.4
has deferred announcing an increase in electricity tariffs pending a Market Cap (RMm) 34,565.1
programme to educate the public on the need to raise rates. Daily Trading Vol (m shs) 4.2
52wk Price Range (RM) 5.85 - 8.60
♦ Delay a dampener but need for public education indicates that Major Shareholders: (%)
tariff hike is on the cards. We believe investors would be disappointed 37.8
Khazanah Nasional
by (yet again) another delay. Originally scheduled for end-2009, the tariff 15.8
EPF
review was delayed in Jan ’10 and appears to be delayed again. However,
a silver lining is that a tariff increase appears to be on the cards, but it’s
just a matter of timing. At this stage, however, it is unclear whether the FYE Aug FY10 FY11 FY12
electricity tariff increase would be in relation to the base tariff hike or for EPS chg (%) - - -
higher fuel costs, e.g. natural gas. Var to Cons (%) 1.6 8.8 9.4
♦ Tariff increase for higher fuel costs likely earnings neutral but a
hike in base tariff could lift forecasts significantly. A tariff increase PE Band Chart
for higher natural gas price would be earnings neutral to TNB as the tariff
PER = 16x
hike would merely allow TNB to cover the higher gas price. For every 10% PER = 13x
change in gas price, we estimate tariffs would need to be adjusted by just PER = 10x
1% to neutralise the impact. As for coal, TNB had previously guided for
an estimated average full-year cost of US$85/tonne (vs. our assumption
of US$88/tonne), on par with the benchmark price. A base tariff hike,
however, would be positive for earnings as this would help TNB cover
rising capacity payments for Jimah. We estimate that every 1%-pt
increase in tariffs could raise our FY11 net profit projection by 5-6%.
♦ Fundamentally on the mend. We see TNB as a key beneficiary of an
Relative Performance To FBM KLCI
improving economy. Demand for the months of Nov and Dec had picked
up again, registering growth of +12.2% yoy and +7.6% yoy respectively
thanks to a recovery across the board. Industrial demand for Nov ’09 rose
11.1% yoy, the first positive monthly yoy growth since Sept ’08, while
Dec ’09 demand was up 8.9% yoy. Overall, we believe this strong yoy FBM KLCI
growth could potentially be sustained going into 2QFY10 (especially given
that demand would be coming from a lower base) and there could be
Tenaga Nasional
upside to our demand growth assumptions (for Peninsular Malaysia) of
+3.8% in FY10 and +4.5% in FY11. Our sensitivity analysis suggests that
every 1%-pt change in our demand growth assumption would impact our
net profit projections by around 2.5-3%.
♦ Risks. Risks include: 1) slower-than-expected demand growth; 2)
depreciating RM; and 3) rise in coal prices.
♦ Forecasts. No change to our forecasts for now.
♦ Investment case. Our indicative fair value of RM9.50 (target CY10 PER
of 14x) is unchanged. Despite the delay in tariff review, it appears that a
David Chong, CFA
tariff increase for TNB is on the cards and is just a matter of time. Besides
(603) 9280 2186
that, demand is on the uptrend with monthly yoy growth for the industrial
david.chong@rhb.com.my
segment already in positive territory. Finally, coal costs appear contained.
Thus, we are reiterating our Outperform call on the stock.

Please read important disclosures at the end of this report. Page 1 of 2

 Table 2 : Profit Forecasts Table 3 : Forecast Assumptions
FYE Aug (RMm) 2009 2010f 2011f 2012f FYE Aug 2010f 2011f 2012f
Turnover 28,785.6 28,704.4 29,953.2 31,261.1 Average tariff (sen/kWh) 31.0 31.0 31.1
Growth (%) 23.4 (0.3) 4.4 4.4 Demand (%) – excl. Exports/LPL 3.8 4.5 4.5
Total electricity sales (GWh) 89,373 93,186 97,179
EBITDA 7,260.4 8,280.0 8,872.8 9,290.3 % change 3.6 4.3 4.3
Margins (%) 25.2 28.8 29.6 29.7
Avg coal price (US$/tonne) 88 88 88
Dep/amort (3,561.5) (3,777.4) (3,909.7) (3,914.6) Coal cost/Total fuel cost (%) 38.0% 39.0% 42.8%
Net int inc/exp (949.7) (1,005.2) (977.8) (892.8) Coal cost/Op cost + dep (%) 15.5% 15.7% 17.7%
Associates 33.1 44.0 44.0 44.0
Investments 0.0 0.0 0.0 0.0 Source: RHBRI
Forex (1,239.2) 0.0 0.0 0.0
Exceptionals 0.0 0.0 0.0 0.0
Pre-tax profit 1,543.1 3,541.5 4,029.4 4,526.9
Tax (690.1) (812.0) (934.0) (1,030.2)
Minorities 64.9 82.6 94.0 105.6
Net profit 917.9 2,812.1 3,189.4 3,602.3
Core net profit 2,157.1 2,812.1 3,189.4 3,602.3
Source: RHBRI

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank
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contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
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The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or
more over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take
on higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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