24 April 2012
AmResearch positive on Tenaga Nasional on stabilising natural gas supply, falling coal and gas prices, fair value of RM 7.35
(TENAGA opening stock price today (24.4.2012) was RM6.48)
Maintain buy at RM6.52 with fair value of RM7.35: We reiterate our “buy” call on TNB with an unchanged discounted cash flow-derived fair value of RM7.35 per share, which implies a CY12F price-earnings ratio (PER) of 13 times and a price-to-book (P/BV) value of 1.1 times.
Petroliam Nasional Bhd (Petronas) has signed an agreement to increase its supply of natural gas to Keppel Corp’s wholly owned Keppel Energy Pte Ltd by 43 million cu ft of gas per day (mmscfd) to 115 mmscfd.
Under the 18-year agreement, Petronas will supply the gas through a new 5km pipeline that will link its peninsular gas utilisation (PGU) pipeline from a metering station at Plentong in Johor to Singapore’s main gas network. Petronas Gas Bhd and Keppel Gas Pte Ltd will jointly build the pipeline, which is scheduled for completion by the middle of next year. The gas will be used to power Keppel Energy’s 500MW cogeneration plant currently under construction on Jurong Island.
This sale to Keppel underpins our confidence that Petronas’ gas supply issues should be fully alleviated with the 500mmscfd Lekas re-gasification plant in Melaka, which commences operation this August. Out of this capacity, 200mmscfd will be supplied to the power sector.
We remain positive on TNB because of:
(i) stabilising natural gas supply will provide clearer earnings visibility; (ii) falling global coal and US-based natural gas prices, which will positively transform the company’s cost structure. A US$10 (RM30.60) per tonne decrease in coal costs will raise FY13F net profit by 14%;
(iii) the likelihood that Petronas and the government will continue to bear the higher liquefied natural gas costs from the Melaka regasification plant in the near term (due to political factors), which could mitigate further fuel cost pressures;
(iv) new plant-ups to replace the first generation independent power producers, with expiring power purchase agreements likely to reduce capacity payments. In an open tender environment with TNB as the bidder and sole off-taker, fixed power purchase costs are likely to decline.
The stock trades at a P/BV of 1 times, at the lower range of 1 to 2.6 times over the past five years. TNB offers an attractive CY12F PER of 11 times compared with the stock’s three-year average band of 10 to 16 times. — AmResearch, April 23