Stock Name: TENAGA
Company Name: TENAGA NASIONAL BHD
Research House: OSK
Tenaga Nasional Bhd
(March 23, RM6.18)
Maintain buy at RM6.23 with reduced fair value RM7.54 (from RM7.74): Tenaga Nasional (TNB) CEO Datuk Seri Che Khalib says TNB is considering using piped natural gas or liquefied natural gas (LNG) for a proposed 300MW gas-fired power plant in Sabah. With the producing gas fields all offshore the West Coast, a gas pipeline would have to follow the path of the East-West interconnection stretching over 200km of mountainous terrain and costing a fair bit.
The alternative, an LNG importation terminal, will also not be cheap. Gas would have to be imported at the market price of some RM40 per mmBTU (million British thermal units) to make economic sense, while importation at the current peninsula power gas price of RM10.70 per mmBTU would result in a loss.
The Sendai earthquake will have turned public opinion negatively towards nuclear power plants in Malaysia and we believe the news flow on this will be quiet for a while.
Meanwhile, there will be more emphasis on renewable energy (RE), with companies such as Cypark already completing its solar plant even before the RE Act is passed. While there is a possibility of the Act being passed in the current parliament sitting, the implementation of an overall 1% tariff hike to allow for TNB to implement feed-in tariffs is unlikely to materialise until after the general election.
Immediately after the Sendai earthquake, we were uncertain on the coal price outlook as we were unsure if power plant outage or demand drop would be the bigger driver.
It has now emerged that damage to the coal handling ports in Northeast Japan is limiting imports of coal, which could lead to a 10% drop in coal imports over the next six months. Over the longer term, however, a re-evaluation of nuclear power could lead to higher coal demand.
We reduce our fair value to RM7.54. While we keep our FY11 coal price forecast unchanged, the potential longer-term coal demand leads us to tweak up coal prices past FY11 to US$112 (RM340) per tonne, cutting our profit forecast by 7% as well as our fair value.
Nonetheless, we believe the Japan disasters will put greater emphasis on industry transparency, including the RE Act, the renegotiation of power purchase agreements and ultimately the fuel pass-through tariff formula. We maintain our 'buy' call. ' OSK Research, March 23
This article appeared in The Edge Financial Daily, March 24, 2011.
Company Name: TENAGA NASIONAL BHD
Research House: OSK
Tenaga Nasional Bhd
(March 23, RM6.18)
Maintain buy at RM6.23 with reduced fair value RM7.54 (from RM7.74): Tenaga Nasional (TNB) CEO Datuk Seri Che Khalib says TNB is considering using piped natural gas or liquefied natural gas (LNG) for a proposed 300MW gas-fired power plant in Sabah. With the producing gas fields all offshore the West Coast, a gas pipeline would have to follow the path of the East-West interconnection stretching over 200km of mountainous terrain and costing a fair bit.
The alternative, an LNG importation terminal, will also not be cheap. Gas would have to be imported at the market price of some RM40 per mmBTU (million British thermal units) to make economic sense, while importation at the current peninsula power gas price of RM10.70 per mmBTU would result in a loss.
The Sendai earthquake will have turned public opinion negatively towards nuclear power plants in Malaysia and we believe the news flow on this will be quiet for a while.
Meanwhile, there will be more emphasis on renewable energy (RE), with companies such as Cypark already completing its solar plant even before the RE Act is passed. While there is a possibility of the Act being passed in the current parliament sitting, the implementation of an overall 1% tariff hike to allow for TNB to implement feed-in tariffs is unlikely to materialise until after the general election.
Immediately after the Sendai earthquake, we were uncertain on the coal price outlook as we were unsure if power plant outage or demand drop would be the bigger driver.
It has now emerged that damage to the coal handling ports in Northeast Japan is limiting imports of coal, which could lead to a 10% drop in coal imports over the next six months. Over the longer term, however, a re-evaluation of nuclear power could lead to higher coal demand.
We reduce our fair value to RM7.54. While we keep our FY11 coal price forecast unchanged, the potential longer-term coal demand leads us to tweak up coal prices past FY11 to US$112 (RM340) per tonne, cutting our profit forecast by 7% as well as our fair value.
Nonetheless, we believe the Japan disasters will put greater emphasis on industry transparency, including the RE Act, the renegotiation of power purchase agreements and ultimately the fuel pass-through tariff formula. We maintain our 'buy' call. ' OSK Research, March 23
This article appeared in The Edge Financial Daily, March 24, 2011.
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