TNB still top pick as quarterly profit buoys 'buy' call (5347)

by **hlk** Sun 22 Jul 2012, 20:34

KUALA LUMPUR: Tenaga Nasional Bhd remains a top pick by some research houses after the country's biggest power producer reported a second straight quarterly profit.

OSK Research Sdn Bhd has reiterated its "buy" call after TNB posted a RM631.6 million net profit in the third quarter ended May 31 2012.

It said TNB still justified its call given that the outlook for its financial year ending August 2013 (FY13) appears more upbeat.

This will be sweetened by a possible tariff re-rating after the general election.

"We believe TNB's FY13 outlook should improve as the re-gasification terminal in Malacca will commence operation in September while the re-negotiation of the first- generation independent power producers (IPPs) as well as declining coal price may potentially mitigate the higher generation cost," OSK said in a report yesterday.

It also noted that TNB had been assured that it will not have to bear the brunt of higher gas prices when it starts importing liquefied natural gas in September.

This seems to indicate that even if gas prices changed, the impact on TNB would be neutral, the firm explained.

These positive developments will help TNB mitigate rising operating costs and boost its bottom line, OSK said.

"That said, we prefer not to revise our FY13 earnings numbers at this juncture," it said, although it had cut FY12 earnings estimates by 17 per cent for a fair value of RM7.57 based on discounted cash flow model.

AmResearch Sdn Bhd also maintained its "buy" call on TNB with a higher fair value of RM7.95 per share compared with RM7.35 per share previously.

It agreed that falling global coal and US-based natural gas prices will positively transform TNB's cost structure.

"A further US$10 (RM31.50) per tonne decrease in coal cost assumption could raise FY13 forecast net profit by 12 per cent," it said.

by JF Sun 22 Jul 2012, 22:27

It also noted that TNB had been assured that it will not have to bear the brunt of higher gas prices when it starts importing liquefied natural gas in September.

means our gov will either subsidies or we pay for the cost eh... Rolleyes