December 2, 2011

Tenaga up on Petronas, government plan to share fuel cost burden

Stock Name: TENAGA
Company Name: TENAGA NASIONAL BHD
Research House: MIDFPrice Call: BUYTarget Price: 6.70



KUALA LUMPUR (Dec 2):'' TENAGA NASIONAL BHD [] shares rose in early trade on Friday after the utility company ''received a letter from the government on that provides a fuel cost sharing mechanism to address the utility's increased cost due to the gas shortage.

At 9.05am, Tenaga was up 12 sen to RM5.80 with 339,800 shares done.

Tenaga said on Dec 1 that the letter provided that Tenaga, Petronas and the government would each equally share the differential cost incurred by Tenaga due to dispatching on alternative fuels and also imports, from Jan 1, 2010 until Oct 31, 2011 amounting to approximately RM3.07 billion.

MIDF Research in a note Dec 2 said it viewed this development as positive for Tenaga with compensation of an estimated RM2.0 billion or 36.6 sen per share between the government and Petronas as well as all future costs related to any gas curtailment.

The research house said that with the fuel cost sharing mechanism in place, Tenaga was now eased from the burden of high fuel costs.

MIDF Research said it therefore had adjusted upwards its FY12f earnings by 10% to account for the fuel compensation.

'Based on our post FY12f earnings adjustment, we are revising our target price to RM6.70 (previously RM6.00) based on DCF valuation with WACC maintain at 8.8%.

'Hence, we upgrade our recommendation from Neutral to Buy,' it said.

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