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TENAGA NASIONAL (TNB MK, TENA.KL) 21 June 2021

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TENAGA NASIONAL (TNB MK, TENA.KL) 21 June 2021 POWER TENAGA NASIONAL (TNB MK, TENA.KL) 21 June 2021 Selected industries still humming, attractive dividend Company report BUY Gan Huey Ling, CFA (Maintained) [email protected] 03 2036 2305 Rationale for report: Company update Investment Highlights Price RM10.44 Fair Value RM12.00 52-week High/Low RM11.457/RM9.146 We maintain BUY on Tenaga Nasional (TNB) with an unchanged DCF-based fair value of RM12.00/share Key Changes (terminal growth rate: 2.0%, WACC: 7.0%). We ascribe a Fair value Unchanged three-star ESG rating to TNB. EPS Unchanged YE to Dec FY20 FY21F FY22F FY23F We forecast electricity demand for Peninsular Malaysia to improve by 3.0% in FY21F (1QFY21: -0.3% YoY) in contrast Revenue (RMmil) 43,976.0 48,498.4 49,975.4 50,709.2 to a fall of 5.0% in FY20. We believe that the impact of MCO Net Profit (RMmil) 3,869.4 4,316.4 4,452.3 4,647.2 3.0 would not be as severe as last year’s MCO 1.0 as many EPS (sen) 68.0 75.9 78.3 81.7 industries are still allowed to operate, albeit with a smaller EPS growth (%) (19.7) 11.6 3.1 4.4 Consensus net profit (RMmil) 4,331.0 4,844.0 5,003.0 4,996.0 workforce. DPS (sen) 80.0 80.0 85.0 90.0 PE (x) 15.3 13.8 13.3 12.8 On a negative note, we reckon that electricity demand from EV/EBITDA (x) 5.6 5.4 5.2 5.1 the commercial sector would be weak in FY21F as Div yield (%) 7.7 7.7 8.1 8.6 ROE (%) 6.8 7.6 7.5 7.6 shopping malls, hotels and educational facilities are still Net gearing (%) 63.3 64.2 58.7 53.4 operating below capacity or not operating at all. Stock and Financial Data Industries accounted for 40% of TNB’s sales volume in 1QFY21 while commercial accounted for another 27%. Shares Outstanding (million) 5,686.9 Residential households made up an additional 31% of Market Cap (RM’mil) 59,371.2 TNB’s sales volume while others (agriculture, mining and Book value (RM/share) 9.89 P/BV (x) 1.1 public lighting) accounted for the balance 2%. ROE (%) 6.8 Net Gearing (%) 63.3 RP3 (Regulatory Period 3) negotiations for the period of 2022F to 2024F are currently ongoing. We believe that the Major Shareholders Khazanah Nasional (25.7%) important parameters are the required rate of return and EPF (17.7%) capex allocations granted to TNB. Although the rate of Free Float (%) 74.3 return may decline under RP3 as the cost of debt has Avg Daily Value (RMmil) 33.9 fallen, we believe that it cannot be too low as there would not be any incentive for TNB to invest in capex. Presently, Price performance 3mth 6mth 12mth the rate of return under RP2 Interim is 7.3%. Absolute (%) +0.3 +1.5 -8.1 Relative (%) +5.1 +5.3 -12.8 In spite of TNB’s initiatives to expand its renewable asset portfolio, we reckon that these will take time. Renewable power plants (mainly hydro and solar) accounted for 7.5% of TNB’s generation mix in 1QFY21. TNB’s target is to own 8,300MW of renewable energy assets in FY25F vs. 3,402MW as at March 2021. As at end-December 2020, TNB’s effective generating capacity stood at 13,857MW. Incidentally, TNB’s foreign shareholding has been falling. TNB’s foreign shareholding stood at 12.4% as at end- March 2021 compared with 16.9% as at end-March 2020. At the peak in August 2016, TNB’s foreign shareholding stood at 28.3%. On a positive note, we believe that TNB’s dividend payments would still be decent. We forecast TNB’s gross DPS to be 80.0 sen in FY21F (FY20: 80 sen), which translates into a yield of more than 7.0%. Tenaga Nasional 21 June 2021 EXHIBIT 1: TNB’S FOREIGN SHAREHOLDING 30.00% 28.00% 26.00% 24.00% 22.00% 20.00% 18.00% 16.00% 14.00% 12.00% 10.00% Feb-16 Feb-17 Feb-18 Feb-19 Feb-20 Feb-21 Aug-15 Aug-16 Aug-17 Aug-18 Aug-19 Aug-20 Nov-15 Nov-16 Nov-17 Nov-18 Nov-19 Nov-20 May-16 May-17 May-18 May-19 May-20 Source: Company EXHIBIT 2 : ESG RATING Overall ★ ★ ★ Carbon emissions ★ ★ Exposure to renewables ★ ★ Waste management ★ ★ ★ Migrant workers welfare ★ ★ ★ Work site safety ★ ★ ★ ★ Corporate social responsibility ★ ★ ★ ★ Corruption free pledge ★ ★ ★ ★ Accessibility and transparency ★ ★ ★ ★ We accord a discount/premium of -6%, -3%, 0%, +3% and +6% on fundamental fair value based on the overall ESG rating as appraised by us, from 1-star to 5-star AmInvestment Bank Bhd 2 Tenaga Nasional 21 June 2021 EXHIBIT 3: FINANCIAL DATA Income Statement (RMmil, YE 31 Dec) 2019 2020 2021F 2022F 2023F Revenue 50,939.7 43,976.0 48,498.4 49,975.4 50,709.2 EBITDA 18,471.6 18,132.3 19,109.1 19,398.9 19,593.6 Depreciation (10,188.9) (10,622.4) (10,777.3) (10,953.2) (10,972.8) Operating income (EBIT) 8,282.7 7,509.9 8,331.8 8,445.7 8,620.8 Other income & associates 52.6 76.5 63.1 69.4 83.3 Net interest (2,857.6) (3,351.0) (3,311.1) (3,271.6) (3,232.4) Exceptional items 0.0 0.0 0.0 0.0 0.0 Pretax profit 5,477.7 4,235.4 5,083.8 5,243.5 5,471.8 Taxation (1,032.7) (619.0) (743.0) (766.3) (799.7) Minorities/pref dividends 84.2 (23.7) (24.4) (24.9) (24.9) Profit from discont ops 0.0 0.0 0.0 0.0 0.0 Net profit 4,529.2 3,592.7 4,316.4 4,452.3 4,647.2 Core net profit 4,819.2 3,869.4 4,316.4 4,452.3 4,647.2 Balance Sheet (RMmil, YE 31 Dec) 2019 2020 2021F 2022F 2023F Fixed assets 109,966.0 112,596.1 112,818.8 112,865.6 112,892.8 Intangible assets - - - - - Other long-term assets 43,128.1 41,034.7 41,117.0 41,186.5 41,269.8 Total non-current assets 153,094.1 153,630.8 153,935.8 154,052.0 154,162.6 Cash & equivalent 6,291.7 6,441.5 6,709.5 8,526.3 10,443.2 Stock 1,925.3 1,583.8 1,583.8 1,583.8 1,583.8 Debtors 4,760.5 6,893.7 6,893.7 6,893.7 6,893.7 Other current assets 12,776.2 12,883.3 13,880.7 12,859.3 12,859.3 Total current assets 25,753.7 27,802.3 29,067.7 29,863.1 31,780.0 Creditors 9,220.3 10,534.1 10,639.4 10,639.4 10,639.4 Short-term borrowings 3,479.3 6,409.1 6,729.6 6,729.6 6,729.6 Other current liabilities 11,102.1 11,858.4 10,383.7 7,165.4 6,838.4 Total current liabilities 23,801.7 28,801.6 27,752.7 24,534.4 24,207.4 Long-term borrowings 41,932.4 43,043.5 43,473.9 43,473.9 43,473.9 Other long-term liabilities 53,831.1 52,138.6 52,138.6 54,011.6 54,011.6 Total long-term liabilities 95,763.5 95,182.1 95,612.5 97,485.5 97,485.5 Shareholders' funds 57,981.8 55,833.2 57,997.2 60,229.3 62,559.2 Minority interests 1300.3 1616.7 1641.1 1666.0 1690.9 BV/share (RM) 10.27 9.89 10.28 10.67 11.08 Cash Flow (RMmil, YE 31 Dec) 2019 2020 2021F 2022F 2023F Pretax profit 4,445.0 3,616.4 4,340.8 4,477.2 4,672.1 Depreciation 10,188.9 10,622.4 10,777.3 10,953.2 10,972.8 Net change in working capital 5,348.8 1,597.1 3,674.2 3,526.3 3,476.4 Others (84.7) (317.7) (320.9) (324.1) (327.3) Cash flow from operations 19,898.0 15,518.2 18,471.5 18,632.6 18,793.9 Capital expenditure (10,759.5) (6,909.7) (11,000.0) (11,000.0) (11,000.0) Net investments & sale of fixed assets (73,111.7) (68,925.1) 0.0 0.0 0.0 Others 74,969.0 70,341.5 0.0 0.0 0.0 Cash flow from investing (8,902.2) (5,493.3) (11,000.0) (11,000.0) (11,000.0) Debt raised/(repaid) 1,113.3 2,004.5 0.0 0.0 0.0 Equity raised/(repaid) 0.0 0.0 0.0 0.0 0.0 Dividends paid (3,017.7) (5,238.6) (2,152.4) (2,220.2) (2,317.3) Others (13,965.3) (4,208.8) (3,632.0) (3,595.7) (3,559.7) Cash flow from financing (15,869.7) (7,442.9) (5,784.4) (5,815.8) (5,877.1) Net cash flow (4,873.9) 2,582.0 1,687.0 1,816.7 1,916.9 Net cash/(debt) b/f 7,598.6 2,440.7 5,022.5 6,709.5 8,526.3 Forex 1.1 (0.2) 0.0 0.0 0.0 Net cash/(debt) c/f 2,725.8 5,022.5 6,709.5 8,526.3 10,443.2 Free cash flow 9,138.5 8,608.5 7,471.5 7,632.6 7,793.9 FCF/share 160.69 151.37 131.38 134.21 137.05 Key Ratios (YE 31 Dec) 2019 2020 2021F 2022F 2023F Revenue growth (%) 1.1 -13.7 10.3 3.0 1.5 EBITDA growth (%) 42.3 -1.8 5.4 1.5 1.0 Pretax margins (%) 10.8 9.6 10.5 10.5 10.8 Net profit margins (%) 8.9 8.2 8.9 8.9 9.2 Interest cover (x) 6.5 5.4 5.8 5.9 6.1 Effective tax rate (%) 18.9 14.6 14.6 14.6 14.6 Net dividend payout (%) 49.9 49.9 49.9 49.9 49.9 Debtors turnover (days) 34 57 52 50 50 Source: Company, AmInvestment Bank estimates AmInvestment Bank Bhd 3 Tenaga Nasional 21 June 2021 DISCLOSURE AND DISCLAIMER This report is prepared for information purposes only and it is issued by AmInvestment Bank Berhad (“AmInvestment”) without regard to your individual financial circumstances and objectives.
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