Mixed views on Tenaga’s results in spite of bonus earnings
KUCHING: Analysts are mixed over Tenaga Nasional Bhd (Tenaga) as it reports earnings of RM1.8 billion for its first quarter of finanicial year 2018 (QFY18), which was within expectations and accounting for 25 per cent of consensus estimates.
Tenaga is changing its year end to December from August and as such will announce a December 2017 quarter result soon.
Despite strong demand growth of 3.6 per cent in the same time last year, 1Q18 demand grew by a further 1.2 per cent.
MIDF Amanah Investment Bank Bhd ( MIDF Research) observed that operating earnings were flattish while net profit was down given higher finance cost, mainly from its 51 per cent-owned Southern Power Generation’s Sukuk issuance for Project 4A.
It also said Tenaga enjoyed bonus earnings in the Regulatory Period 1 (RP1) which ran from 2015 to 2017.
Tenaga’s RP1 regulated earnings was inflated by the “bonus” earnings coming from higher than forecast average rates, as average RP1 allowable return was RM3.4 billion per annum, but actual regulated earnings achieved is estimated to have been around RM4.4 billion given the more favourable average rates.
“Average 1QFY18 rates achieved was 39.46sen per kwh -- against RP1’s base rate of 38.53sen per kwh,” detailled MIDF Research, given a more favourable customer mix than RP1 forecast. To note, industrial consumers are charged lower tariffs while commercial and domestic segments are charged higher.
“As the proportion of higher priced commercial and residential segment volumes were higher than forecast, Tenaga enjoyed ‘bonus’ earnings in 1QFY18 and also for the most part of RP1.
“After getting more clarity from management on RP2, we see possibilities of negative earnings impact on Tenaga, in the sense that the “bonus” earnings explained above is unlikely to sustain into RP2.
“This is because the reference price in calculating Tenaga’s revenues for RP2 is based on the actual average tariff achieved at end RP1 which is 39.45sen instead of RP1’s 38.53sen.”
This led MIDF Research to believe that Tenaga’s inflated earnings not sustainable.
“As such, while average allowable returns are higher for RP2 as we had argued previously, the “bonus” earnings which inflated Tenaga’s profits in RP1 is unsustainable.”
Given the absence of the “bonus” earnings in RP2, MIDF Research estimate Tenaga’s regulated earnings to be impacted by RM500 to RM600 mmillion per annum or circa seven per cent per annum.
Kenanga Investment Bank Bhd (Kenanga Research) believed that Tenaga’s sequential results were hit by high coal price.
This comes as its 1Q17 core profit contracted 15 per cent quarter- on- quarter ( q- o- q) to RM1.47 billion from RM1.72 billion in 4Q12, which was largely due to higher fuel costs by five per cent as average coal price rose 14 per cent in ringgit terms to RM365.40 per metric tonne.
Thus, total coal costs jumped 17 per cent or RM384.4 million to RM2.66 billion. However, liquefied natural gas (LNG) cost fell by six per cent to RM1.93 billion as gas volume requirement fell eight per cent to 890mmscfd from 968mmscfd previously.
Meanwhile, share of profit of associate turned to losses at RM67.1 million, from a profit of RM68.4 million previously, largely due to losses at its Indian power company subsidiary GMR Energy Ltd on higher fuel costs.
Taxation declined sharply to RM63.5 million from RM417.9 million due to reversal of deferred taxation of RM157.8 million owing to lower accrued revenue.
Overall, group revenue fell seven per cent to RM11.61 billion as revenue for Peninsular Malaysia dipped 1% as demand growth fell 0.4% while the ICPT turned to over-recovery of RM196.7m from underrecovery of RM61.8 million previously.