We have seen a very strong run up on the KLSE and everything else being equal, our Captains of Industry must be working wonders in driving efficiencies and effectivenss in thier respective organizations. So I thought. Every week I eagerly await the Star to read the Brokers Call as this section gives some insights which a lay person can never get access too.
What is interesting, and I commented on this is an earlier post: Idris Jala – MAS – True Market Recognition , was that asides from MAS, the Brokers were giving thumbs up to companies because of specific deals in hand and not because the CEO’s have been able to make the organizations more effective and efficient.
This report on TNB further validates my belief. After all, if I am running Khazanah, my most critical KPI wil be the sum total of my portfolio value. And one of the quickest way to drive up share prices is to pump out strong dividend payments and put in slick investor relations activities to bring in the money.
The “rah rah-ing”, celebrating and back patting is coming at the expense of the consumer who is footing higher bills to offset the inefficiencies. Look at GAMUDA and the toll increase. In the article – see here – it says customers will get use to paying higher toll rates and LITRAK will be able to payout a divident of 50sen per share ….
The risk of this is, instead of focusing on real value creation using EVA computation, share price is being used as the proxy of performance, which will lead us down the wrong path. As share prices increase, the dividend yields will drop, and soon the share will no longer be attractive – especially to institutional investors. Whereas measuring performance on an EVA basis will reflect true improvements and will also give rise to share price .
Unless operational efficiencies are wrought out of teh GLC’s, we wll continue to use scarce capital ineffctively, inflation will continue to creep up due to inefficient pricing and everyone will lose.
COMMENT by ZJ Research: Year to date, Tenaga Nasional Bhd’s net profit is up 180%. For the first nine months of FY07, revenue came in at RM17,194.4mil (up 16.5% year-on-year) due to impact from the tariff hike and higher electricity sales.
The commercial, industrial and domestic sectors each recorded increased sales of 20.3%, 13.9% and 11.6% respectively. Meanwhile, the nine-month net profit (up 180% yoy to RM3,892.7mil) was also attributed to forex gains of RM1,001mil, gain on landbank disposal of RM230mil and recovery of delinquent debt of RM138mil.
For 3QFY07 yoy analysis, Tenaga’s revenue increased 17.7% to RM5,910.7mil, in-line with our expectations. Net profit increased by 176.1% to RM1,091.7mil from RM395.4mil in 3QFY06. However, if forex gains and extraordinary income are excluded, net profit was RM659.6mil (increase 80.8% from RM364.9mil in 3QFY06).
Quarter on quarter (qoq) comparison is less favourable as the rise in turnover of 4% was mitigated by a sharper rise in costs, principally payments to independent power producers (IPPs).
With the commissioning of the second unit of the Tanjung Bin power plant on Feb 2007, IPP costs had increased and is expected to rise further with the commissioning of the third unit in September 2007. Year to date, there was an 11.5% increase in IPP cost per unit sold.
Tenaga’s profitability growth may be affected on account of its inability to freely increase prices, or to adjust for cost increases. Due to the above, operating margins in the current quarter were lower at 22.6% from 26.6% in the last quarter.
A second interim gross dividend of 10 sen was declared for the quarter under review bringing the total dividend declared for the year to 20 sen, versus 14 sen in FY2006. We forecast that TNB can still declare a further dividend of 15sen, which will translate to gross dividend yield of 3.1%.