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.

Source: www.thestar.com.my

Indonesia is proposing an export tax increase of 25 per cent this year, jumping to 50 per cent in 2013, to boost revenue and curb output boom, TNB sources 70 per cent of its coal requirements from Indonesia

(TENAGA opening stock price today (25.4.2012) was RM 6.53)

Malaysia's power sector will not face a crisis if Indonesia's proposal to impose a 25 per cent export tax on coal and base metals this year comes into effect.

However, production cost will be affected, said Energy, Green Technology and Water Minister Peter Chin Fah Kui.

While Malaysia has secured long-term contracts for coal with Indonesia, there is a need to diversify the country's import sources for coal from other countries like Vietnam and Russia, to ensure supply security, Chin told reporters after delivering a talk on "The Future Of Energy in Malaysia" at an event hosted by the Malaysian International Chamber of Commerce and Industry.

Indonesia, the world's top exporter of thermal coal, is proposing an export tax increase of 25 per cent this year, jumping to 50 per cent in 2013, to boost revenue and curb output boom.

"Certainly, the tax will affect our pricing, but then we've signed long-term contract with Indonesia, so it's not as if tomorrow we're buying from the spot market.

"Besides that, most of our plants can be adopted to use gas, yet we are not saying we have to sit down there and wait until our contract expires. TNB (Tenaga Nasional Bhd) has to go outside and source," Chin added.

The tax proposal was greeted with a mix of worry and confusion by industry players such as India, Indonesia's largest coal customer.

Recent news reports stated India, which imports about 12 per cent of its coal requirements and sources 70 per cent of that from Indonesia, could face a crisis if the proposed tax is implemented.

Meanwhile, the proposed tax uncertainty has had some buyers beginning to diversify their supply source, including Malaysia.

The coal that is used in power generation in Peninsular Malaysia is imported mainly from Indonesia.

Earlier in his talk, the minister said the dependence on a particular fuel type had its implications with respect to the security of the source of supply and price of that fuel.

Meanwhile, according to a recent MIDF Research note, the country's national utility, TNB is unlikely to be affected by Indonesia's tax plans on coal as it will be applicable only to low quality coal.

TNB would be exempted since it only imports high quality coals from Indonesia, the research house said.

Currently, TNB sources 70 per cent of its coal requirements from Indonesia, 20 per cent from Australia and 10 per cent from South Africa.

Source: www.bernama.com

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

Source: www.theedgemalaysia.com