21 July 2012
Summary of Analyst Report: Tenaga Nasional (TNB) target price at RM 7, Hold - HwangDBS Vickers
Tenaga Nasional Bhd's (TNB) revenue for the third quarter of financial year 2012 grew 6.5% quarter-on-quarter after a 4.4% increase in power demand. However, core profit fell 9% to RM607mil due to additional fuel costs as a result of gas shortage.
Gas supply in the quarter only reached 940 mmscfd, much lower than its 1,250 mmscfd requirement.
Earnings were partly lifted by gas compensation. The weak third-quarter results were partly compensated by a RM778mil compensation from Petronas and the Government received in the quarter for the gas shortfall.
We expect core profit for the fourth quarter to come in at RM450mil plus RM400mil gas compensation.
Additional gas supply from the Malacca regasification terminal that will come onstream on Sept 12 will be priced at market rate; the indicative price is RM41-RM45/mmbtu.
TNB is negotiating with the Government to pass on the additional RM1.6bil gas costs. We believe the issue is unlikely to be resolved soon and TNB may not be able to raise electricity tariff prior to the general election.
We maintain “hold” on TNB. This is premised on the uncertainty over its ability to pass on higher gas costs.
We would accumulate the stock again at about RM6 for longer term upside from a post-election tariff hike and savings in capacity payments when the first-generation power purchase agreements expire.