CIMB upgrades TNB, cites benefits from Govt reform initiatives

PETALING JAYA: Tenaga Nasional Bhd (TNB) will benefit from the Government's reform initiatives to create an electricity supply value chain that is more transparent and driven by market economics.

Upgrading its call on the national utility firm, CIMB Research said the extension of the first-generation power purchase agreements (PPAs) could add up to 30% to TNB's financial year ending Aug 31, 2013 (FY13) core net profit estimates.

One of the criteria for these first-generation PPAs to be extended is for the independent power producers (IPPs) to reduce capacity payments they get from TNB from now till the end of their current agreements.

The old PPAs will expire between 2015 and 2017.

In its note to clients, CIMB Research, which upgraded TNB from “neutral” to “trading buy”, said that under the Government's reform initiatives, one proposal being reviewed was shifting the gas subsidy from Petroliam Nasional Bhd to the Government.

This will enable Petronas to save RM23bil per year in subsidies, increase oil and gas investments, and enhance the upkeep of Malaysia's gas transport infrastructure.

“Collectively, we think this will improve Malaysia's fuel-source security and reduce the long-term probability of future gas supply shocks,” it said.

The research house added that this was positive for TNB, which had borne the brunt of recent gas supply shortfalls through the use of expensive alternate fuels.

TNB's net loss for the first three months of financial year 2012 narrowed to RM224.7mil as in the fourth quarter of FY11, it reported a net loss of RM453.9mil largely due to continued use of alternative fuels to generate electricity.