Stock Name: TENAGA
Company Name: TENAGA NASIONAL BHD
Research House: ECMLIBRA
KUALA LUMPUR: ECM Libra Investment Research has maintained its buy recommendation on TENAGA NASIONAL BHD [] (TNB) at RM8.50 with an unchanged target price of RM9.90, and said the company's 6MFY10 core net profit of RM1.6 billion (+24% y-o-y) was within expectations at 57% of its full-year earnings estimate and 54% of consensus estimates. "We consider this within expectations as historically, TNB incurs more expenses towards year end. 6MFY10 revenue of RM14.7 billion (+3% y-o-y) was also within expectations at 49% of our full-year estimate. "The interim dividend per share of six sen less 25% tax (6MFY09: two sen less 25% tax and two sen tax exempt) was within expectations too," it said. The research house said that for 6MFY10, although unit demand grew 7% y-o-y on the back of the recovering economy, the average tariff was reduced by 4% on March 1, 2009. "Therefore, revenue grew by only 3% y-o-y. That said, fuel costs dived by a disproportionate 25% y-o-y driven by lower coal (6MFY10: US$80.7/MT, 6MFY09: US$100.9/MT) and gas prices (6MFY10: US$10.70/mmBTU, 6MFY09: US$14.31/mmBTU). "Consequently, 6MFY10 core net profit of RM1.6 billion was 24% higher y-o-y," it said. ECM Libra said it was trimming its FY10-FY12 earnings estimates by 3%-5% for higher average coal price assumption of US$90/MT (US$85/MT previously) as spot coal prices are currently hovering at the US$100/MT level tempered by higher unit demand growth assumption of 7.5% (6.5% previously) as per revised management guidance of 7%-8%. "Although management is not confident of obtaining a base tariff review we believe it will obtain a fuel cost tariff adjustment come mid-2010 as the average coal price of US$90/MT is higher than the US$85/MT level current tariffs are designed to cover," it said. The research house said although fuel cost adjustments are meant to be earnings neutral, it believes TNB's valuations will revert to long-term averages as it proves that the government is committed to preserving TNB's profitability. "Our unchanged RM9.90 target price implies 15 times one-year forward PE, which is the mean since June 2006 when tariffs were increased for the first time in a decade. Tenaga is currently trading at only 13 times one-year forward PE or two times above the recent trough. "Foreign shareholding is still low at 9% suggesting limited downside risk. Tenaga remains our top pick in the power sector," it said.
Company Name: TENAGA NASIONAL BHD
Research House: ECMLIBRA
KUALA LUMPUR: ECM Libra Investment Research has maintained its buy recommendation on TENAGA NASIONAL BHD [] (TNB) at RM8.50 with an unchanged target price of RM9.90, and said the company's 6MFY10 core net profit of RM1.6 billion (+24% y-o-y) was within expectations at 57% of its full-year earnings estimate and 54% of consensus estimates. "We consider this within expectations as historically, TNB incurs more expenses towards year end. 6MFY10 revenue of RM14.7 billion (+3% y-o-y) was also within expectations at 49% of our full-year estimate. "The interim dividend per share of six sen less 25% tax (6MFY09: two sen less 25% tax and two sen tax exempt) was within expectations too," it said. The research house said that for 6MFY10, although unit demand grew 7% y-o-y on the back of the recovering economy, the average tariff was reduced by 4% on March 1, 2009. "Therefore, revenue grew by only 3% y-o-y. That said, fuel costs dived by a disproportionate 25% y-o-y driven by lower coal (6MFY10: US$80.7/MT, 6MFY09: US$100.9/MT) and gas prices (6MFY10: US$10.70/mmBTU, 6MFY09: US$14.31/mmBTU). "Consequently, 6MFY10 core net profit of RM1.6 billion was 24% higher y-o-y," it said. ECM Libra said it was trimming its FY10-FY12 earnings estimates by 3%-5% for higher average coal price assumption of US$90/MT (US$85/MT previously) as spot coal prices are currently hovering at the US$100/MT level tempered by higher unit demand growth assumption of 7.5% (6.5% previously) as per revised management guidance of 7%-8%. "Although management is not confident of obtaining a base tariff review we believe it will obtain a fuel cost tariff adjustment come mid-2010 as the average coal price of US$90/MT is higher than the US$85/MT level current tariffs are designed to cover," it said. The research house said although fuel cost adjustments are meant to be earnings neutral, it believes TNB's valuations will revert to long-term averages as it proves that the government is committed to preserving TNB's profitability. "Our unchanged RM9.90 target price implies 15 times one-year forward PE, which is the mean since June 2006 when tariffs were increased for the first time in a decade. Tenaga is currently trading at only 13 times one-year forward PE or two times above the recent trough. "Foreign shareholding is still low at 9% suggesting limited downside risk. Tenaga remains our top pick in the power sector," it said.
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