MIDF expects higher dividend for TNB on lower capex


MIDF Amanah Investment Bank Bhd (MIDF Research) expects improved dividend payout for Tenaga Nasional Bhd (TNB) on the back of lower capital expenditure (capex) for the financial year ending Dec 31, 2019 (FY19).

The utility giant’s capex for FY18 stood at RM11.8 billion compared to RM11 billion and RM12 billion it recorded for FY16 and FY17 respectively.

The capex for last year included RM5.3 billion for generation capex, while the remaining RM6.5 billion for transmission and distribution recurring capex.

“With minimal new generation projects in the pipeline (and given the new government’s indication of already high reserve capacity), we think that TNB’s capex (generation capex) is already past peak, as most of the existing projects have progressed well including Jimah East, which is 98% complete; TNB Bukit Selambau (22%); and Southern Power Generation (74%).

“This suggests room for further growth in dividend payout. The management is guiding for lower RM9 billion to RM10 billion capex for FY19F,” the research house noted in a report last week.

The current capex excludes TNB’s fibre plans — of which the financial details are not forthcoming yet.

MIDF Research also said the pilot project in Jasin, Melaka, has been completed to ascertain the technical aspect of it, and that the management is assessing the commercial aspect of the business plan.

“TNB will likely remain in the regulated wholesale space and refrain from going into the higher risk retail segment,” it noted.

As such, the research house maintained its ‘Buy’ call on the company, but adjusted its target price lower to RM14.40 from RM14.60.

It added that the key catalysts for the recommendation include a decent dividend yield of 4%, while valuations are cheap at 13 times FY19F earnings, relative to the market’s 16 times to 17 times; peaking capex suggests room for dividend upside; and possible monetisation of backbone fibre asset.

TNB has declared a 23 sen dividend for the fourth quarter (4Q) ended Dec 31, 2018, and 53.27 sen for the year.

The group recorded a net profit of RM3.72 billion for FY18, about a 42% increase, as revenue jumped during the period.

However, the power company recorded its 1Q net loss since 2012 with a net loss of RM134.3 million, largely due to lower revenue, higher finance costs, foreign-exchange translation loss and provision for taxation.

The counter closed 34 sen or 2.53% lower to RM13.08 last Friday, giving it a market capitalisation of RM74.39 billion.