For QE31/8/2012, Tenaga's net profit increased by 62.8% q-o-q to RM1.01 billion while revenue increased by a mere 1.6% to RM9.33 billion. The bottom-line for Tenaga is distorted by two things: currency fluctuation & compensation from the Government & Petronas in respect of gas curtailment due to the re-gasification project in Sungai Udang, Malacca.
We can understand the unpredictability of forex gain or loss and to some extent the unpredictability of the compensation from the Government & Petronas as it is dependent on pas prices. However, Tenaga has more than confused yours truly (an accountant by training but not by profession) by confusing between amount received & amount accrued (or recognized). To add to the confusion, it changed its presentation of the compensation figure as part of Other Operating Income (prior to QE31/5/2012) to part of Operating Expenses.
It must be added that the compensation which appeared in QE29/2/2012 onwards had distorted the accounts for the last 2 quarters (QE29/2/2012 & QE31/5/2012), that any comparison which includes these two quarters is quite meaningless. The reason is simply this: the compensation for these two quarters include amount that should have been accrued in prior quarters. This is what I gathered from the financial statements:
- For QE31/5/2012, Tenaga recognized a compensation of RM777.8 million while it received compensation of RM367.4 million from the Government & Petronas as altenative fuel cost differential from September 2011 to May 2012 [totaling RM1145.2 million]. The right amount for compensation for QE31/5/2012 should be RM777.8 million but in the financial statement for QE31/8/2012, the comment in the q-o-q comparison states that the operating expenses were lower in the immediate preceding quarter, QE31/5/2012 due to compensation recognized of RM1145.2 for the period from September 2011 to May 2012. So, which is the right figure- RM777.8 million or RM1145.2 million?
- For QE29/2/2012, Tenaga received compensation of RM2023 million from the Government & Petronas in respect of gas curtailment from January 1, 2010 to October 31, 2011 [totaling RM3069 million]. Which is the right figure to use- RM2023 million or RM3069 million?Despite the foregoing, I believe that the latest quarterly result for QE31/8/2012 should reflect the 'normalized' operation of Tenaga. On that basis, it is heartening to note that Tenaga was able to achieve an Operating Profit & Pre-tax Profit margin of about 14%. With coal prices dropping (see Chart 2) and natural gas prices showing sign of peaking (Chart 3), the prospect of Tenaga continuing to report good results is deemed reasonably good.
Table 1: Tenaga's last 8 quarterly results
Chart 1: Tenaga's last 27 quarterly results
Chart 2: Coal's prices for the past 30 years (Source:Mongabay.com)
Chart 3: LNG's prices for the past 30 years (Source:Mongabay.com)
Valuation
CIMB, which rated Tenaga as a Trading BUY, put the PE of this stock at 17.2 times its 2012 earning (of 40.4 sen). According to the same CIMB report, tenaga is now trading at a P/Book of 1.14 times & has a dividend yield of 2.9%. For the Power sector, CIMB prefers GASMSIA. For more, go here.
(Note: I chose not to give my estimate of Tenaga's earning due to the wild fluctuation)
Technical Outlook
Tenaga is struggling to stay at its uptrend line at RM7.00. In early October, I called a trading BUY on the stock when it broke above the strong horizontal resistance at RM7.10. That turned out to be a false alarm. We will have to wait for the stock to recover back above the uptrend line and to charge above the RM7.10 resistance again. Tenaga has truly tested the faith of its shareholders!
Chart 4: Tenaga's daily chart as at Nov 1, 2012_10.30am (Source: Quickcharts)
Chart 4: Tenaga's weekly chart as at Nov 1, 2012_10.30am (Source: Quickcharts)
Conclusion
Based on improved financial performance & fairly attractive valuation, Tenaga is a good stock for long-term investment. The concerns for the stock is political risk (resulting in its inability to pass through cost increases) & the uncertain technical outlook.
Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Tenaga.
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