April 19, 2011

TENAGA - OSK maintains 'hold' call on Tenaga

Stock Name: TENAGA
Company Name: TENAGA NASIONAL BHD
Research House: OSK

Higher coal costs and weak electricity sales in the first half of Tenaga Nasional Bhd''s (TNB) 2011 financial year are likely to weaken the company''s second quarter results to be announced on Thursday.

"Supported by high crude oil prices, coal costs remain persistently high with Newcastle coal at over US$120 per tonne despite a temporary weaker demand due to Japan''s natural calamities," OSK Research said in a research note today.

It expected TNB''s first half electricity sales growth to be weak given that sales for the five-month period from Sept 1, 2010 to Jan 31, 2010 in Peninsular Malaysia grew by only 3.8 per cent year-on-year.

Hence, OSK maintained a hold call on TNB.

"We have downgraded financial year 2011 earnings by 17 per cent to RM2.4 billion due to the raising of our coal assumption by US$10 per tonne to US$110 per tonne in the absence of any off-setting tariff rate increase," OSK Research said.

Currently, the research house said, the greater risk to TNB''s earnings stemmed from the rise in fuel costs and the timing of an electricity tariff hike to offset the higher costs.

Echoing the view that second quarter results would experience a decline, Kenanga Research said further erosions to earnings would eat into TNB''s RM9.2 billion cash pile which is dedicated for several reasons, including repayment of debts and future power plant projects. - BERNAMA

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