TNB continues to electrify

Saturday June 8, 2013

TNB continues to electrify

PETALING JAYA: Despite having gained some 20% year-to-date, Tenaga Nasional Bhd's (TNB) shares continue to be on a roll, underpinned by its improving outlook and steady growth in electricity demand.

The utility giant added four sen to close at RM8.29 yesterday. TNB shares have gained some 50 sen since the beginning of May 2013.

According to Bloomberg data, 18 analysts have a “buy” rating on the counter, three a “hold” rating and only two a “sell” call.

The consensus 12-month target price is RM8.89, while the consensus net profit for its financial year (FY) ending Aug 31, 2013 is RM3.58bil.

In an initiative report, BIMB Securities Research sees the current transformation efforts within Peninsular Malaysia's electricity supply industry as one of the most significant events in TNB's history, as it could “transform” the utility's financial profile significantly, likely triggering a subsequent stock re-rating by the market.

The research outfit has a “trading buy” call on TNB, with a target price of RM8.96.

“While undoubtedly its improved financial performance over the previous quarters have helped in contributing to its share price uptrend, which has gained 33% over the past 12 months, we believe materialisation of the sector's reform would be the most critical factor for TNB to break away from its record high of RM9.39, recorded almost 20 years back,” it said.

“The proposed introduction of incentive based regulatory or IBR and the implementation of the automated fuel cost pass-through mechanism, together with a more competitive power generation sector, are seen as important factors required in establishing a sustainable power sector in Peninsular Malaysia and to rationalise the Government's subsidy for the sector.

“While taking a view at this juncture remains a challenging task, the sector would have to endure strong reforms to break away from current predicaments,” BIMB Securities stated.

It also reckoned that TNB stood a “very good chance” of securing at least one of the ongoing plant-up programme tenders by the Energy Commission, with a combined capacity of 3GW.

TNB is currently bidding for two new coal-fired power plants of 1,000MW (Project 3A) and 2x1,000MW (Project 3B).

Additionally, BIMB Securities said TNB was also at various planning stages to bring up to approximately 1GW of hydro generation capacity.

Given the group's ongoing capacity expansion programmes, which represent 73% of all ongoing plant-up exercises in Peninsular Malaysia, BIMB Securities expects the group to retain its dominance in the generation segment.

By end-2016, it expects the group's effective installed capacity to account for 57% of total installed capacity in the Peninsula.

“With the expectation of gross domestic product growing around the 5% range this and next year, we forecast a demand growth of 4.7% and 4.3% in FY13 and FY14.”