Tenaga Nasional Bhd
(April 14, RM8.42)
Maintain buy at RM8.37, target price of RM11.80: Tenaga's 2Q result will be released by month-end. While year-on-year (y-o-y) numbers will look good, quarter-on-quarter (q-o-q), they will be flattish. Power demand soared 14% y-o-y, off 2009's recession-hit low base in the three months ended Feb. Q-o-q, growth was just 1%. 2HFY10 will be challenging as higher costs kick in. A tariff hike and the reinstatement of the tariff formula are crucial. There are increasing expectations the government will deliver. We call a buy on the stock.
We estimate 1H net profit ex-forex items to be in the region of RM1.4 billion (+17% year to date). This is assuming 2Q costs costs were similar to those in 1Q, which may not necessarily be the case. For example, "other costs" ranges widely every quarter from RM240 million (1QFY10) to RM748 million (4QFY08). In general, costs tend to be back-loaded into the second half. The stronger ringgit in 2Q should result in a RM85 million translation gain for the quarter, taking the 1H gain to RM40 million (1Q: RM45 million loss).
Demand growth could slow from the 8% in 1H. The industrial sector grew a blistering 18% in Jan and 36% in Feb (1H: 9.4%). This might have been driven by stockpiling ahead of the then widely anticipated electricity and gas price hikes. Power demand could slow in the coming months if we are proven right. Our full-year forecast is for 4% growth.
2H headwinds include higher coal prices and independent power producer (IPP) payments. An additional RM550 million of capacity payments to IPP Jimah will be incurred in 2HFY10, in accordance with the power purchase agreement (PPA) terms.
Also, while we believe Tenaga secured most of its 1H coal requirements at about US$80/tonne (RM256), prices have been rising. Every US$10 increase in the price of coal results in about US$160 million of additional costs per year.
There has been no word on the status of CEO Datuk Seri Che Khalib Mohamad Noh, whose second three-year term expires in June.
Tariffs are the other major issue. Tenaga requires a 4% tariff hike to recover the capacity payments to Jimah, and the tariff formula to pass on fuel cost variations. Our forecasts include a 4% tariff hike effective June. - Maybank IB, April 14
This article appeared in The Edge Financial Daily, April 15, 2010.
(April 14, RM8.42)
Maintain buy at RM8.37, target price of RM11.80: Tenaga's 2Q result will be released by month-end. While year-on-year (y-o-y) numbers will look good, quarter-on-quarter (q-o-q), they will be flattish. Power demand soared 14% y-o-y, off 2009's recession-hit low base in the three months ended Feb. Q-o-q, growth was just 1%. 2HFY10 will be challenging as higher costs kick in. A tariff hike and the reinstatement of the tariff formula are crucial. There are increasing expectations the government will deliver. We call a buy on the stock.
We estimate 1H net profit ex-forex items to be in the region of RM1.4 billion (+17% year to date). This is assuming 2Q costs costs were similar to those in 1Q, which may not necessarily be the case. For example, "other costs" ranges widely every quarter from RM240 million (1QFY10) to RM748 million (4QFY08). In general, costs tend to be back-loaded into the second half. The stronger ringgit in 2Q should result in a RM85 million translation gain for the quarter, taking the 1H gain to RM40 million (1Q: RM45 million loss).
Demand growth could slow from the 8% in 1H. The industrial sector grew a blistering 18% in Jan and 36% in Feb (1H: 9.4%). This might have been driven by stockpiling ahead of the then widely anticipated electricity and gas price hikes. Power demand could slow in the coming months if we are proven right. Our full-year forecast is for 4% growth.
2H headwinds include higher coal prices and independent power producer (IPP) payments. An additional RM550 million of capacity payments to IPP Jimah will be incurred in 2HFY10, in accordance with the power purchase agreement (PPA) terms.
Also, while we believe Tenaga secured most of its 1H coal requirements at about US$80/tonne (RM256), prices have been rising. Every US$10 increase in the price of coal results in about US$160 million of additional costs per year.
There has been no word on the status of CEO Datuk Seri Che Khalib Mohamad Noh, whose second three-year term expires in June.
Tariffs are the other major issue. Tenaga requires a 4% tariff hike to recover the capacity payments to Jimah, and the tariff formula to pass on fuel cost variations. Our forecasts include a 4% tariff hike effective June. - Maybank IB, April 14
This article appeared in The Edge Financial Daily, April 15, 2010.
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