Tenaga downgraded, stock tumbles

Tenaga Nasional Bhd, Malaysia’s biggest electricity producer, slid in
Kuala Lumpur trading after reporting its first quarterly loss in almost
three years on higher fuel costs.

The stock dropped 4 per cent to
RM6.26 at 9:35 a.m. local time, the worst performer on the benchmark
FTSE Bursa Malaysia KLCI Index, after banks including Citigroup Inc and
Credit Suisse Group AG cut their forecasts.

“We had expected a
poor set of results due to the gas- curtailment problem, but this
exceeded even our expectations,” Annuar Aziz and Tan Ting Min, Kuala
Lumpur-based Credit Suisse analysts, wrote in a report. They downgraded
Tenaga to “neutral” with a reduced share estimate of RM6.20, describing
the result “shockingly poor.”

The utility posted a net loss of
RM440.2 million (US$147 million), or 8.1 sen a share, in its third
quarter ended May 31, after being hurt by higher power generation costs
due to a shortage of gas and rising coal prices. This compares with net
income of 1.11 billion ringgit, or 20.4 sen a share, a year earlier, the
Kuala Lumpur-based company said late yesterday.




Full-year results will be “severely affected” by coal prices and the
acquisition of alternative fuels due to continued lower gas supplies,
its statement said. “It’s going to be quite challenging,” Chief
Executive Officer Che Khalib Mohamad Noh told reporters in Kuala Lumpur
yesterday.

Reduced Supply

State oil company
Petroliam Nasional Bhd. has cut gas supply while conducting maintenance
at its plants. Tenaga has been buying oil and distillate, more expensive
alternative fuels, from local suppliers to compensate. Its fuel bill
rose to RM2.1 billion in the quarter, including an additional bill of
RM1.3 billion for oil and distillate, Chairman Leo Moggie told
reporters.

Petroliam Nasional, or Petronas, will conduct three
more maintenance exercises this year, which will continue to limit gas
supply, Che Khalib said.

At the same time, Tenaga said it paid an
average US$109 per metric ton for the coal used to power its plants, up
18 per cent from the same quarter a year earlier. The company’s
profitability falls 18 per cent for every increase of US$10 per ton in
coal prices, Che Khalib said in January.

To help pass on costs,
Prime Minister Najib Razak’s government allowed Tenaga to raise
electricity charges for the first time in almost three years, by an
average 7.1 per cent starting in June.

‘Not Much Help’

The
increased electricity tariffs haven’t helped much, Che Khalib said. “It
costs six times more to generate electricity using oil and distillate,”
he said.

AmResearch Sdn Bhd cut its 2011 fiscal year earnings
estimate by half to RM974 million. “Although we have been warning in our
reports since April this year that Tenaga will be affected by
Petronas’s natural gas curtailment, the impact was much worse than we
anticipated,” analyst Alex Goh wrote in a report today, reducing his
fair value to RM6 from RM6.60.

Citigroup downgraded the company
to “sell,” with analyst Ng Yong Yin cutting his share estimate to RM6
ringgit from RM7.90 in a report today.

Tenaga last reported a quarterly loss in the three months ended November 2008. -- Bloomberg