Stock Name: TENAGA
Company Name: TENAGA NASIONAL BHD
Tenaga Nasional Bhd
(July 18, RM6.52)
Maintain hold at RM6.74 with target price of RM7.05: We believe that the upcoming 3QFY11 results (due this Thursday) will be very weak, owing to major maintenance shutdowns of natural gas facilities, high coal price and money-losing proposition of generating power from oil and distillates. Nonetheless, this should have been priced in, with the business outlook having improved significantly with the new tariff effective June and another possible upward revision in December. Maintain 'hold', with a target price of RM7.05 on 13 times FY12 price-earnings ratio.
We think TNB will barely break even in 3QFY11, a far cry from RM480 million core net profit achieved for 2QFY11 (1HFY11: RM1,299 million). The reasons are higher average coal price of US$122.60 (RM370.25) per tonne (+25% year-on-year, -1% quarter-on-quarter), gas curtailment due to a major maintenance shutdown and higher cost associated with burning oil and distillates for power generation. We consider 3QFY11 the trigger that will ultimately push the government to react; it is a necessary evil.
This is the question we eagerly wait to ask the management. The recent maintenance was aimed to remedy some of the problems and insert a bypass line at the troubled Bekok gas field. This is supposed to provide an additional 100 mmscfd to the line. The impact is significant, as 100 mmscfd equates to RM430 million-450 million of cost savings per year compared to burning coal as a replacement energy source.
Coal prices remain high, buoyed by higher global demand for coal due to the decommissioning of older generation nuclear power plants in Germany, France and the ill-fated Fukushima power plant incident in Japan. The FY11 (September to May) price of Newcastle benchmark coal is US$115.50 (+32% y-o-y) and the spot price is US$121 per tonne.
We maintain our forecast for now, pending the results. The third quarter is exceptional as we have no basis to predict the impact of the maintenance shutdown. Nonetheless, we look forward to better earnings prospects in FY12 and the possible upward tariff revision in December may serve as a basis for re-rating. ' Maybank IB Research, July 18
This article appeared in The Edge Financial Daily, July 19, 2011.
Company Name: TENAGA NASIONAL BHD
| Research House: MAYBANK | Price Call: HOLD | Target Price: 7.05 |
Tenaga Nasional Bhd
(July 18, RM6.52)
Maintain hold at RM6.74 with target price of RM7.05: We believe that the upcoming 3QFY11 results (due this Thursday) will be very weak, owing to major maintenance shutdowns of natural gas facilities, high coal price and money-losing proposition of generating power from oil and distillates. Nonetheless, this should have been priced in, with the business outlook having improved significantly with the new tariff effective June and another possible upward revision in December. Maintain 'hold', with a target price of RM7.05 on 13 times FY12 price-earnings ratio.
We think TNB will barely break even in 3QFY11, a far cry from RM480 million core net profit achieved for 2QFY11 (1HFY11: RM1,299 million). The reasons are higher average coal price of US$122.60 (RM370.25) per tonne (+25% year-on-year, -1% quarter-on-quarter), gas curtailment due to a major maintenance shutdown and higher cost associated with burning oil and distillates for power generation. We consider 3QFY11 the trigger that will ultimately push the government to react; it is a necessary evil.
This is the question we eagerly wait to ask the management. The recent maintenance was aimed to remedy some of the problems and insert a bypass line at the troubled Bekok gas field. This is supposed to provide an additional 100 mmscfd to the line. The impact is significant, as 100 mmscfd equates to RM430 million-450 million of cost savings per year compared to burning coal as a replacement energy source.
Coal prices remain high, buoyed by higher global demand for coal due to the decommissioning of older generation nuclear power plants in Germany, France and the ill-fated Fukushima power plant incident in Japan. The FY11 (September to May) price of Newcastle benchmark coal is US$115.50 (+32% y-o-y) and the spot price is US$121 per tonne.
We maintain our forecast for now, pending the results. The third quarter is exceptional as we have no basis to predict the impact of the maintenance shutdown. Nonetheless, we look forward to better earnings prospects in FY12 and the possible upward tariff revision in December may serve as a basis for re-rating. ' Maybank IB Research, July 18
This article appeared in The Edge Financial Daily, July 19, 2011.
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