TNB dips to 52-week low on negative news

PETALING JAYA: Tenaga Nasional Bhd (TNB) dipped briefly to its 52-week low of RM5.07, 31% lower than the RM7.39 it recorded a year ago, with negative news saying that TNB may incur additional fuel cost of up to RM3bil. However, research houses are still maintaining their views on the utility giant. The company shed nine sen to end at RM5.12 yesterday with 5.615 million shares changing hands.

CIMB Research said it was a negative surprise as TNB will have to spend extra on alternative fuels and would need a cash call to fund operations should the gas shortage persist.

“We estimate for every RM500mil, TNB would need to issue 95 million shares, diluting fiscal year 2012 earnings per share by 1.8%,” it said in a report yesterday, adding that it believed TNB might not announce any more dividends for the rest of 2011.

On Tuesday, TNB chief executive officer Datuk Seri Che Khalib Mohamad Noh said the company’s fourth quarter performance would be bad and his earnings estimate for 2011 had gone haywire and had been cut by more than 50%, marred by a continued gas supply shortage.

Its “neutral” call was maintained and it said although valuations were attractive, it was offset by the absence of a robust cost pass-through mechanism.

It said the gas shortage might only be permanently resolved by the second half of 2012, when Petronas Gas’s regasification terminal in Malacca is operational and Malaysia begins importing liquefied natural gas at market prices.

To be noted, the market price of natural gas is three to four times higher than Malaysia’s RM13.70 per mmbtu (million metric British thermal unit) subsidised price.

“While TNB has indicated in the past that it will not pass on the additional costs to consumers, it remains to be seen who will absorb the additional gas costs,” it said while reducing its target price to RM6 from RM6.77 previously.

Meanwhile, OSK Research maintained its “buy” call on the utility giant, adding that TNB’s share price has slid some 23% since early July.

It said TNB could continue to record losses in the fourth quarter of 2011 and first quarter of 2012 with the build up of bad news such as a possible demand growth curtailment, continued gas supply issues, planned outages at coal fired power plants and no tariff hike.

“It has now come to a point when despite the weak fundamentals, the valuations of TNB shares are too cheap to ignore,” it said, while cutting its fair value to RM7.53 to RM6.24.

It cited two main factors for a cut in their demand growth forecast for 2012 from 2.8% to 2% which is due to the uncertainties in the global economy coupled with continued gas supply disruptions.

“Gas supply was disrupted by planned outages which will last until January 2012, and delayed partial restoration of gas supply from the Bekok gas platform which we believe was only restored this month (100 million standard cu ft), compared with the earlier scheduled June 2011 deadline.

“These, together with planned maintenance of coal plants, may result in TNB incurring a loss in fourth quarter 2011 that is similar to that in the third quarter,” it said,

Interestingly, AmResearch upgraded TNB to a “buy” call prior to the news and had maintained its call yesterday with an unchanged discounted cash flow derived fair value of RM6.40 per share from RM6 previously.

It said TNB’s valuations have become compelling for an essential national utility, with its share price falling below its book value of RM5.32 per share matching its lowest price to book value level for the past 12 years.

“These valuations were briefly reached only during the global financial crisis in late 2008 to early 2009,” it said in a research report recently. AmResearch also deemed TNB’s net gearing to be comfortable at 45% as at May 31, 2011 compared with 194% in 2004, when Khalib first joined the group as its head, adding that its net debt has likewise fallen from RM29bil to RM13bil currently.

“The additional cost of distillates could raise TNB’s current net gearing to a still comfortable 55% via-a-vis almost two times in 2003. Hence TNB should be able to draw down from the additional financing lines still available from the banks,” it said.

It expects the gas shortage to be largely resolved by the end of the year when Petronas completes its maintenance programme for its upstream gas supply facilities, with the normalisation of the group’s fuel costs to be seen in the second half of 2012.