SPAusNet – CIMB

Concerns overdone

• Bushfires and a writ. Bushfires in Victoria, Australia on 7 Feb 09 affected about 1% of SPN’s electricity distribution assets and caused power outage to 6,000 customers. Weather and arson were cited as the culprits. However, a court writ was filed against SPN for “faulty and/or defective power lines”, alleging that strong winds felled a stretch of its power lines, sparking fire in a nearby pine forest.

• Legal issues. SPN believes that the claim is premature and inappropriate, given the establishment of a Royal Commission of Inquiry into the Victorian bushfire crisis. It also says that it will vigorously defend itself against any claims.

• Asset damage and lost revenue. We estimate that SPN may have to bear the replacement and repair cost of up to 3,478 poles, amounting to A$17.4m, which will affect our FY10 net profit forecast by 8.2%. Lost revenue from the 6,000 customers is insignificant, at only 0.6% of our FY09 net profit forecast.

• Maintain Outperform, lower target price of S$1.31 (from S$1.44). We have reduced our FY10-11 net profit forecasts by 3-9% to account for the repair of damaged assets, translating to a lower DCF-derived target price of S$1.31 (WACC 10%). SPN continues to be well supported by an attractive yield of over 10%.

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