Tenaga Nasional New policy underpins rising dividend potential

Transcription

1 13 December 2016 Corporate Update Tenaga Nasional New policy underpins rising dividend potential Maintain BUY Unchanged (TP): RM16.80 Tenaga announced a new dividend policy of a 30%-50% earnings payout We are positive on the move as historical dividend payout had been in the sub-30% levels The development underpins our thesis of rising dividends at Tenaga given an underutilised balance sheet Re-affirm BUY at unchanged TP of RM16.80/share. RETURN STATS Price (7 December 2016) Target Price Expected Share Price Return RM13.98 RM % An updated dividend policy. Tenaga announced a new dividend policy of distributing 30%-50% of earnings as dividends. This is a move away from the previous dividend policy of paying out 40%-60% of Free Cash Flows (defined as Operating Cashflow less normalised capex and interest). We are positive on this news as historically Tenaga had been paying mostly sub-30% earnings payout for dividends (See Exhibit 1). On an earnings payout basis, Tenaga had been paying 25%/27%/25% of EPS as dividends over FY14/15/16. Assumptions at mid-end of new policy. Our assumption of a 45% earnings payout for FY17F/18F, which implies ~4% dividend yield, is at the mid-end of the new 30%-50% earnings payout dividend policy and compares well to the sub-30% payout in the past 6 years. At the ceiling 50% payout, implied dividend yield could rise to 4.3%-4.5%. In fact, considering recurring capex of just RM6-7b, we think Tenaga has the capacity to pay a lot more dividends than this, notwithstanding possible allocations for M&As or expansion, which we presume would be majority funded by debt as balance sheet is underleveraged at 0.3x net gearing. Dividend yields could rise to 6.4%-6.8% if Tenaga were to payout 100% of FCF. Recommendation. Management s move towards the new dividend policy underpins our thesis of rising dividend potential at Tenaga given an underutilised balance sheet. We re-affirm our BUY on Tenaga at unchanged TP of RM We like Tenaga for: (1) Dividend catalyst on the back of FCF yield of ~7% over FY17F/18F, a relatively under-geared balance sheet at 0.35x and the upcoming capital optimisation exercise (2) Overseas expansion provides scope for stronger growth in the midterm (3) Strong earnings visibility post-icpt implementation. Capital management and the resolution of its RM2b tax issue with the Inland Revenue Board are key catalysts over the next 12 months. 4% dividend yield looks attractive. Expected Dividend Yield +4.1% Expected Total Return +24.3% STOCK INFO KLCI 1, Bursa / Bloomberg 5347/TNB MK Board / Sector Main Syariah Compliant Yes Issued shares (mil) Par Value (RM) 1.00 Market cap. (RM m) 79,019.6 Price over NA wk price Range RM RM14.9 Beta (against KLCI) mth Avg Daily Vol 12.0m 3-mth Avg Daily Value RM172m Major Shareholders (%) Khazanah Nasional 28.21% EPF 15.47% Skim ASB 5.47% MIDF RESEARCH is a unit of MIDF AMANAH INVESTMENT BANK Kindly refer to the last page of this publication for important disclosures

2 INVESTMENT STATISTICS FYE Aug FY14 FY15 FY16 FY17F FY18F Revenue (RM m) 42, , , , ,457.1 EBIT (RM'm) 7, , , , ,044.1 Pre-tax Profit (RM m) 7, , , , ,443.3 Core net profit (RM'm) 4, , , , ,708.5 FD EPS (sen) EPS growth (%) (13.7) (7.8) (6.2) PER (x) Net Dividend (sen) Net Dividend Yield (%) Source: Company, MIDFR EXHIBIT 1: HISTORICAL DIVIDEND PAYOUT RATIO Source: Bloomberg, Company, MIDFR 2

3 DAILY PRICE CHART Hafriz Hezry Source: Bloomberg, MIDFR 3

4 Income Statement FY14 FY15 FY16 FY17F FY18F Revenue 42, , , , ,457.1 Operating expenses (35,162.5) (35,591.5) (35,459.5) (39,254.8) (41,413.0) EBIT 7, , , , ,044.1 Net interest expense (617.9) (662.7) (740.3) (696.4) (703.5) Associates PBT 7, , , , ,443.3 Taxation (687.9) (1,072.8) (746.0) (844.5) (1,688.7) Minority Interest (40.2) (57.5) (46.8) Net profit 6, , , , ,708.5 Core net profit 4, , , , ,708.5 Consensus net profit N/A 6,118 7,268 7,379 7,500 Balance Sheet FY14 FY15 FY16 FY17F FY18F Non-current assets 90, , , , ,252.5 PPE 83, , , , ,600.2 Investments in associate Others 7, , , , ,166.9 Current assets 20, , , , ,046.2 Inventories ,046.2 Receivables 7, , , , ,528.1 Others , , ,680.9 Cash & equivalent 11, , , , ,791.0 TOTAL ASSETS 110, , , , ,298.7 Share capital 5, , , , ,643.6 Minority Interest Reserves 41, , , , ,050.3 TOTAL EQUITY 47, , , , ,952.8 Non-current liabilities 54, , , , ,780.5 Long-term borrowings 22, , , , ,417.6 Deferred tax liabilities 6, , , , ,054.1 Others 24, , , , ,308.8 Current liabilities 15, , , , ,565.4 Short-term borrowings 2, , , , ,985.8 Payables 7, , , , ,711.7 Others 5, , , , ,867.9 TOTAL LIABILITIES 69, , , , ,

5 Cash Flow Statement FY14 FY15 FY16 FY17F FY18F Operating activities PBT 7, , , , ,443.3 Depreciation & Amortization 4, , , , ,349.3 Chgs in working capital 3,901.6 (164.5) 22.1 (15.7) Interest expense (617.9) (662.7) (740.3) (696.4) (703.5) Tax paid (690.0) (810.8) (746.0) (844.5) (1,688.7) Others (241.4) (3,416.6) CF from Operations 10, , , , ,042.1 Investing activities Capex (10,006.5) (10,363.7) (7,000.0) (7,000.0) (7,000.0) Others (3,197.7) (2,462.6) CF from Investments (13,204.2) (12,826.3) (6,860.5) (6,860.5) (6,860.5) Financing activities Dividends paid (1,410.9) (1,636.7) (3,160.1) (3,218.6) (3,018.8) Net proceeds in borrowings 3,144.2 (1,775.2) Others (423.9) (839.8) CF from Financing 1,309.4 (4,251.7) (2,927.6) (2,983.8) (2,781.5) Net changes in cash (1,456.9) (5,638.6) 2, , ,400.0 Beginning cash 9, , , , ,952.9 Overdrafts, Deposits & Forex (0.4) Ending cash 7, , , , ,354.0 Ratios FY14 FY15 FY16 FY17F FY18F Revenue growth 15.2% 1.2% 2.9% 7.5% 5.4% EBITDA growth -0.2% 3.9% 9.2% -2.4% 4.0% Net profit growth -13.7% 27.7% 29.7% -7.8% -6.2% EBITDA margin 29.2% 30.0% 29.7% 28.9% 28.5% PATAMI margin 10.9% 13.8% 17.4% 14.9% 13.3% ROE 9.9% 12.6% 15.1% 12.9% 11.4% ROA 4.2% 5.1% 6.4% 5.7% 5.1% Net gearing 28.9% 33.3% 27.4% 21.3% 16.3% Book value/share (RM) PBV (x) EV/EBITDA (x) FCF yield (%)

6 MIDF RESEARCH is part of MIDF Amanah Investment Bank Berhad ( X). (Bank Pelaburan) (A Participating Organisation of Bursa Malaysia Securities Berhad) DISCLOSURES AND DISCLAIMER This report has been prepared by MIDF AMANAH INVESTMENT BANK BERHAD (23878-X). It is for distribution only under such circumstances as may be permitted by applicable law. Readers should be fully aware that this report is for information purposes only. The opinions contained in this report are based on information obtained or derived from sources that we believe are reliable. MIDF AMANAH INVESTMENT BANK BERHAD makes no representation or warranty, expressed or implied, as to the accuracy, completeness or reliability of the information contained therein and it should not be relied upon as such. This report is not, and should not be construed as, an offer to buy or sell any securities or other financial instruments. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. All opinions and estimates are subject to change without notice. The research analysts will initiate, update and cease coverage solely at the discretion of MIDF AMANAH INVESTMENT BANK BERHAD. The directors, employees and representatives of MIDF AMANAH INVESTMENT BANK BERHAD may have interest in any of the securities mentioned and may benefit from the information herein. Members of the MIDF Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein This document may not be reproduced, distributed or published in any form or for any purpose. MIDF AMANAH INVESTMENT BANK : GUIDE TO RECOMMENDATIONS STOCK RECOMMENDATIONS BUY TRADING BUY NEUTRAL SELL TRADING SELL Total return is expected to be >15% over the next 12 months. Stock price is expected to rise by >15% within 3-months after a Trading Buy rating has been assigned due to positive newsflow. Total return is expected to be between -15% and +15% over the next 12 months. Total return is expected to be <-15% over the next 12 months. Stock price is expected to fall by >15% within 3-months after a Trading Sell rating has been assigned due to negative newsflow. SECTOR RECOMMENDATIONS POSITIVE NEUTRAL NEGATIVE The sector is expected to outperform the overall market over the next 12 months. The sector is to perform in line with the overall market over the next 12 months. The sector is expected to underperform the overall market over the next 12 months. 6