Tenaga - BUY - 14 Aug 2008

Tenaga - First windfall tax payment (Company Update)



Price: RM8.45

Target Price: RM9.63

Recommendation: BUY



· Tenaga National (TNB) pays its first windfall tax for July 08 of RM3.7m and RM2.0m arising from TNB Jenamanjung Sdn Bhd (100% owned) and Kapar Energy Ventures Sdn Bhd (60% owned), respectively. To recap, the government has gazetted the windfall tax act on IPPs, which came into effect as of 1/7/08.

· Therefore, we are tweaking our FY08E and FY09E net profit lower by 0.3% and 2.1% to RM3.04b and RM2.80b, respectively. This will reduce our fair value by 5% to RM9.63, which still gives us a 14% upside to TNB's last trading price of RM8.45. In turn, FY08E and FY09E GDPS have been reduced by 0.5% and 2.2% to 21.1sen and 23.5sen or 2.5% and 2.8% dividend yield, respectively. FY08E and FY09E PERs remain attractive at 11x and 13x, respectively.

· On a separate note, it was reported by Business Times that TNB has contracted Konsortium Logistik to transport coal requirements from Australia, Indonesia and South Africa for RM550m over the next 3 years. Recall that all the coal supply for FY09 of 15mt has already been secured, but prices will only be decided on the day physical procurement due to the volatility of coal prices.

· We reiterate our BUY recommendation as we believe that coal prices will stabilize to more manageable levels, in light of declining crude oil prices. We also believe that TNB will be able to negotiate for further tariff hikes, with regards to the variation in coal cost, or request for a portion of the IPP windfall tax as compensation.