Stock Name: TENAGA
Company Name: TENAGA NASIONAL BHD
Company Name: TENAGA NASIONAL BHD
| Research House: OSK | Price Call: BUY | Target Price: 7.68 |
While TNB's share price has rallied in 2012 on expectations of an early General Election,normalizing gas supply and hopes for PPA renegotiations, we view the drop incoal prices as a bigger and more reliable catalyst, and this has prompted us toupgrade the counter to a BUY. Warmer post-winter weather, the absence of floodsin Queensland, slower economic growth in China and the availability of cheapand abundant shale gas in the US have all contributed to lower coal prices. Weraise our net profit forecasts by over 20% largely on the account of lower coalprices with our DCF-based FV raised to RM7.68.
Share Price tearsahead. TNB's share price has been rallying since the start of 2012, risingsome 13.6% since the end of December to touch its YTD high of RM6.70 in early Marchbefore retracing slightly to current levels. We believe the rally can beattributed to a recovery in gas supplies from offshore Terengganu, expectationsof an upcoming General Election and PPA renegotiations between the EC and FirstGeneration IPPs.
Potential 7%bottom-line boost from capacity payment renegotiations. While awaiting details on the PPArenegotiations, we estimate that this may lead to an only 7% boost to TNB'sbottom-line according to preliminary indications. This is assuming the FirstGeneration IPPs will have to compete with new generation capacity and among themselvesto secure an extension to the First Generation PPAs, up to 2,500MW of First GenerationPPAs potentially renegotiated and anindicative 20% reduction in the capacity payments to these renegotiated PPAseffective immediately.
BUT Coal Price is amuch more compelling factor. Coal prices, especially Australian coalprices, have been on the retreat since September due to the improved weather inAustralia thus allowing coal to be mined, transported and exported; warmer weather post the NorthernHemisphere winter season; and indications of a general economic slowdown inChina. In addition, the increased supply of natural gas in the US from shale hasled to the reduced demand for coal.
Raising earnings andUpgrading call to BUY. We now incorporate a 2.23% drop in capacity paymentsfrom FY13 onwards and also drop oureffective coal prices to USD110 for FY12 and FY13. These changes in ourassumptions have led us to raise our net profit forecasts by 26% for FY12, 30%for FY13 and 22% for FY14. Our DCFbased FV is raised to RM7.68. With more than19% upside to our new FV, we upgrade TNB to a BUY based on longer-termfundamental factors. In the shorterterm, uncertainties over the election timing may cap TNB's share price,although we believe the improved q-o-q results in the upcoming 2QFY12 resultsannouncement (mid-April) should also boost sentiment as gas supply normalizessomewhat.
Source: OSK188
No comments:
Post a Comment