TENAGA NASIONAL BUY. Elevated by lower coal costs and stronger demand. Company report. (Maintained) Rationale for report: Company Result UTILITIES

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1 Alx Goh Compn rport Pric ir Vl 5-wk High/Low K Chngs ir vl EPS R6.75 R7.95 R6.76/R5. YE to Ag Y Y Y3 Y4 Rvn (Rmil) 3,6.9 33, , ,7.3 Cor nt profit (Rmil) ,89.7 3,86.3 3,97. EPS (Sn) EPS growth (%) n/ Consnss nt profit (Rmil),744.,8. 3,38. DPS (Sn) PE (x) EV/EBITDA (x) Div ild (%) ROE (%) Nt Gring (%) Stock nd inncil Dt Shrs Otstnding (million) 5,456.6 rkt Cp (Rmil) 8,379.6 Book vl (R/shr) 5.53 P/BV (x). ROE (%).7 Nt Gring (%) 49.9 jor Shrholdrs Khznh Nsionl (38.%) EP (6.%) r lot (%) 37. Avg Dil Vl (Rmil) 7.3 Pric prformnc 3mth 6mth mth Asolt (%)..9 (.) Rltiv (%) (.3). 8.5 ) 7. (R n n PP 47/6/3 (338) n Tng B KLCI n UTILITIES TENAGA NASIONAL (TNB K, TNB.KL) l Elvtd lowr col costs nd strongr dmnd Rtionl for rport: Compn Rslt n,77,433, In d x P o in ts Invstmnt Highlights BUY (intind) W ritrt or BUY cll on Tng Nsionl (Tng), with highr DC-drivd fir vl of R7.95/shr (vs. R7.35/shr prviosl), which implis n Y3 PE of x nd P/BV of.x. W hv risd Y-Y4 nt profits 6%% d to:- (i) Lowring or col cost ssmption from US$/tonn to US$3/tonn for Y nd US$9/tonn for Y3-Y4, (ii) Rising Y powr dmnd growth to 4.5% from 4% prviosl, nd (iii) % incrs in triff in Y3-Y4 in tndm with n incrs of R3/mmt (sd on th govrnmnt s rlir proposd i-nnl incrmnt) for ntrl gs cost from R3.7/tonn crrntl to R6.7/tonn (nr th lndd cost of R7/tonn ssming 5mmscfd from th Lks rgssifiction trminl t R4/mmt nd,mmscfd t th xisting pric). Exclding forx loss of R33mil nd th R,59mil nt fl rlif compnstion (prior r djstmnt) rising from th s of dditionl distillts nd oil, Tng s 9Y cor nt profit of R,55mil cm in ov xpcttions, cconting for 76% of or rlir Y cor nt profit of R,983mil nd 8% of strt stimt s R,744mil. Tng s strongr-thn-xpctd rnings lrgl stmmd from:- (i) 9Y col costs of US$7/tonn (vs. or nd strt s ssmption of US$/tonn), (ii) normlisd gs sppl, nd (iii) 4.4% dmnd growth for Pninslr lsi vs. strt s 4%. W liv strt s stimts wr frthr skwd th non-inclsion of fl rlif stimts, in which Ptrons nd th govrnmnt crrntl r /3 of Tng s dditionl oil nd distillt costs ntil 3 Agst this r. W ndrstnd frthr pstrm mintnnc hs lowrd gs sppl rcntl (to low,mmscfd vs. Ptrons commitmnt to,mmscfd), t this will lrgl offst th cost-shring mchnism with Ptrons nd th govrnmnt. With col prics flling to US$85/tonn crrntl, w xpct strongr QoQ growth for 4QY rnings. W rmin positiv on Tng d to:- () lling glol col nd US-sd ntrl gs prics, which will positivl trnsform th compn s cost strctr. A frthr US$/tonn dcrs in col cost ssmption cold ris Y3 nt profit %. () Liklihood tht Ptrons nd th govrnmnt will contin to r th highr liqfid ntrl gs costs from th lcc rgssifiction plnt in th nr trm (d to politicl fctors), which cold mitigt frthr fl cost prssrs. (3) Nw plnt-ps to rplc th first gnrtion indpndnt powr prodcrs, with xpiring powr prchs grmnts likl to rdc cpcit pmnts. In n opn tndr nvironmnt with Tng s th iddr nd sol off-tkr, fixd powr prchs costs r likl to dclin. Th stock crrntl trds t P/BV of x, t th lowr rng of x-.6x ovr th pst 5 rs. Ernings-wis, Tng offrs n ttrctiv Y3 PE of x, comprd with th stock s thrr vrg nd of x6x.

2 Tng Nsionl l TABLE : RESULTS BREAKDOWN & COENTARY YE Ag (Rmil) 9Y 9Y YoY % 3QY QY 3QY QoQ % YoY% Commnts Rvn 3,86.7 6, ,984. 8,68. 9, Drivn 3% QoQ incrs in nit dmnd, 4.3% YoY incrs for 9Y. Also, triff w s incrsd 7% on n, w hich frthr drov YoY rv n. Op costs (8,3.3) (9,54.7) 7. (7,36.4) (5,658.3) (6,498.4) 4.8 (8.9) Up QoQ d to % incrs in col consmption to 5.5 mil tonns nd highr distillt nd oil costs, driv n 4.4% nit sls growth. This w s prtl offst 4% QoQ dclin in col pric to US$4/tonn in 3QY. EBITDA 4, , ,969.9,69.6 (9.3) 7.6 Down QoQ d to 8% in col costs,.5x Dprcition (,989.) (3,36.6) 4.9 (,35.4) (,46.) (,74.4) incrs in oil, 3x costs. incrs in distillt orx gin/(losss) 7.6 (33.8) (>) (533.) (>) (>) Drivn 6% QoQ dprcition of ringgit vs Nt int xpns (39.) (53.6) 36. (67.5) (95.3) (99.6). 9. US$ nd dow n 8% v s n for th grop's R8il forign dt. Excptionl itms.,58.7.,58.7. Nt djstmnt (ftr tx ) for prior r fl compnstion cost from nr - Agst. Associts (8.6) 46. (3.5) 3.8 > (48.5) Prtx profit, ,5.7 > (48.9) 3, (74.6) > Tx (366.9) (,59.6) > 5.8 (774.3) (77.7) (64.) (>) I 7. (.4) (>) (.5) (>) (>) Nt profit,34. 3,89.7 > (79.), (78.) > Cor nt profit,96.5, (39.) 98.,5. 4. > Up QoQ lrgl d to fll impct of fl-cost shring w ith Ptrons & govrnmnt in 3QY vs onl months nitl 3 Octor for QY. EPS (sn) > (3.3) (78.) > Gross DPS (sn) BV (sn) EBITDA mrgin (%) Low r QoQ mrgin d to highr col, distillt nd mdim fl oil costs. Prtx mrgin (x-ei) (3.) Tx rt (x-ei) (%) QY skwd rv rsl of dfrrd tx. Sorc: Brs lsi AmRsrch Sdn Bhd

3 Tng Nsionl l CHART : PB BAND CHART CHART : PE BAND CHART ) (x.8 +s Avg s 9.4 ) (x.6 +s Avg. A g N o v A g N o v 6. A g N o v A g N o v s CHART 3 : NEWCASTLE COAL SPOT US$/tonn Sorc: Bloomrg AmRsrch Sdn Bhd 3

4 Tng Nsionl l TABLE : INANCIAL DATA Incom Sttmnt (Rmil, YE 3 Ag) 3 4 Rvn 3,37.4 3,6.9 33, , ,7.3 EBITDA 8,53.6 5,3. 8,846. 9,554. 9,873.9 Dprcition (3,95.) (4,4.) (4,4.) (4,4.) (4,6.) Oprting incom (EBIT) 4,3.4,89. 4,65. 5,33 5,7.8 Othr incom & ssocits Nt intrst (,7.9) (87.8) (93.7) (83.) (74.5) Excptionl itms.., Prtx profit 4, ,389. 4, ,65. Txtion (83.) (4.) (83.9) (965.) (,8.7) inoritis/prf dividnds 4.6 (7.) (7.7) (8.5) (9.3) Nt profit 3, , ,86.3 3,97. Cor nt profit, ,89.7 3,86.3 3,97. Blnc Sht (Rmil, YE 3 Ag) 3 4 ixd ssts 58, , ,38.4 6,97.3 6,656. Intngil ssts..... Othr long-trm ssts 87.8,9.,6.6,5.8,5.6 Totl non-crrnt ssts 59,766. 6, , ,3. 63,77.8 Csh & qivlnt 8, ,954. 7,6.4 8,838.,5.4 Stock,45.4, ,4.4 3,4.3 3,353.9 Trd dtors 5,.4 6,. 4,46.6 4,89. 5,3. Othr crrnt ssts Totl crrnt ssts 6,4.5,9.8 5,4.8 7,.4 8,839.6 Trd crditors 5,76.9 5, , , ,5.5 Short-trm orrowings 3,6.7,77.3,97.3,7.3,37.3 Othr crrnt liilitis,7.5,37.5,4.5,494.9,586. Totl crrnt liilitis 9,7. 8,55.4 8, ,578.,8.8 Long-trm orrowings 8,.9 7,36.8 5,36.8 3,36.8,36.8 Othr long-trm liilitis 7, ,46.5 9,58.6 9,897.,683. Totl long-trm liilitis 35, , , ,4. 3,9.8 Shrholdrs fnds 3,44.7 3,8. 34, ,368. 4,46.7 inorit intrsts BV/shr (R) Csh low (Rmil, YE 3 Ag) 3 4 Prtx profit 4, ,389. 4, ,65. Dprcition 3,95. 4,4. 4,4. 4,4. 4,6. Nt chng in working cpitl (,53.4) (94.),38.3 (7.4).9 Othrs,7.9 (9.) (.7) (53.) (55.) Csh flow from oprtions 8,646. 3,373.8, , ,5. Cpitl xpnditr (4,68.) (5,75.3) (5,.) (5,.) (5,35.) Nt invstmnts & sl of fixd ssts 36. (48.3).5.8. Othrs,85.8,8.,8.9,7.4,38.5 Csh flow from invsting (,46.3) (4,855.6) (3,768.6) (3,77.8) (4,3.) Dt risd/(rpid) (,35.4) (,9.5) (,8.) (,8.) (,8.) Eqit risd/(rpid) Dividnds pid (,6.4) (45.5) (947.4) (,95.) (,4.3) Othrs (,6.3) (734.4) (85.6) (79.) (63.4) Csh flow from finncing (3,373.4) (3,34.6) (3,573.) (3,84.) (3,843.7) Nt csh flow,8.4 (4,66.5) 3,648.,35.8,77. Nt csh/(dt) /f 4,64.8 (,47.) 5,448. 3,35.8 3,77. Nt csh/(dt) c/f (,99.9) (5,99.9) (9,65.7) (6,65.9) (3,538.7) K Rtios (YE 3 Ag) 3 4 Rvn growth (%) EBITDA growth (%) 3.3 n/ Prtx mrgins (%) Nt profit mrgins (%) Intrst covr (x) Effctiv tx rt (%) Nt dividnd pot (%) Dtors trnovr (ds) Stock trnovr (ds) Crditors trnovr (ds) Sorc: Compn, AmRsrch stimts AmRsrch Sdn Bhd 4

5 Tng Nsionl l CHART 4 : TENAGA S ELECTRICITY SALES Sorc: Tng s Anlst slids TABLE : TENAGA S UEL COST BREAKDOWN YE Ag (Rmil) 9Y 9Y YoY % 3QY QY 3QY QoQ % YoY% Gs 3,469. 4, ,87.3,485.,48.4 (.) 36.3 Col 4,69.6 5, ,64.7,79., Distillt (5.) Oil 99.9, (49.6) l costs 9,758.3,8.9. 4,84. 3,53.7 4, (3.3) Sorc: Tng s Anlst slids AmRsrch Sdn Bhd 5

6 Tng Nsionl l TABLE 3 : TENAGA S POWER GENERATION TREND Sorc: Tng s Anlst slids CHART 5 : 9Y POWER GENERATION IX (79,74 GWH) Sorc: Tng s Anlst slids AmRsrch Sdn Bhd 6

7 Tng Nsionl l CHART 6 : 9Y UEL COST BREAKDOWN (R,8IL) Sorc: Tng s Anlst slids CHART 7 : OREIGN SHAREHOLDING LEVEL Sorc: Tng s Anlst slids AmRsrch Sdn Bhd 7

8 Tng Nsionl l CHART 8 : TENAGA S COAL CONSUPTION, COST PER TONNE & ESTIATES Sorc: Tng s Anlst slids CHART 9 : TENAGA S ONTHLY UNIT ELECTRICITY SALES GWh 9, 8,5 8, 7,5 7, 6,5 6, 5,5 5, Sp-6-7 l-7 Dc-7-8 Oct-8 r-9 Ag-9 n n Nov Apr Sp GWh YoY chng % Sorc: Tng s Anlst slids AmRsrch Sdn Bhd 8

9 Tng Nsionl l CHART : TENAGA S SEGENTAL ELECTRICITY SALES GWh 4, 3,5 3,,5,,5, 5 Sp-6-7 l-7 Dc-7-8 Oct-8 r-9 Ag-9 n n Nov Apr Sp Indstril Commrcil Domstic Sorc: Tng s Anlst slids CHART : HENRY HUB NATURAL GAS SPOT PRICE US$/mmt Sorc: Bloomrg AmRsrch Sdn Bhd 9

10 Tng Nsionl l CHART : CONSUPTION O OIL, DISTILLATE AND COAL Sorc: Bloomrg Plishd AmRsrch Sdn Bhd (3355-P) (A mmr of th AmInvstmnt Bnk Grop) 5 t h l oor B ng n n A mb n k Grop 55 ln Rj Chln 5 Kl Lmpr Tl: ( 3 ) ( r s rc h) x: ( 3 ) Printd AmRsrch Sdn Bhd (3355-P) (A mmr of th AmInvstmnt Bnk Grop) 5 t h l oor B ng n n A mb n k Grop 55 ln Rj Chln 5 Kl Lmpr Tl: ( 3 ) ( r s rc h) x: ( 3 ) Th informtion nd opinions in this rport wr prprd AmRsrch Sdn Bhd. Th invstmnts discssd or rcommndd in this rport m not sitl for ll invstors. This rport hs n prprd for informtion prposs onl nd is not n offr to sll or solicittion to n scritis. Th dirctors nd mplos of AmRsrch Sdn Bhd m from tim to tim hv position in or with th scritis mntiond hrin. mrs of th AmInvstmnt Grop nd thir ffilits m provid srvics to n compn nd ffilits of sch compnis whos scritis r mntiond hrin. Th informtion hrin ws otind or drivd from sorcs tht w liv r rlil, t whil ll rsonl cr hs n tkn to nsr tht sttd fcts r ccrt nd opinions fir nd rsonl, w do not rprsnt tht it is ccrt or complt nd it shold not rlid pon s sch. No liilit cn ccptd for n loss tht m ris from th s of this rport. All opinions nd stimts incldd in this rport constitt or jdgmnt s of this dt nd r sjct to chng withot notic. or AmRsrch Sdn Bhd Bnn Chw nging Dirctor AmRsrch Sdn Bhd