TNB to register Q2 core net profit of at least RM450m

KUALA LUMPUR: Tenaga Nasional Bhd is expected to return to the black in its second quarter ended February, thanks to a RM2 billion gas compensation, foreign exchange translation gain of RM600 million as well as lower coal prices.

In its research report, MIDF said the national utility company was looking at better second quarter results.

The results are expected to be released on April 12, with MIDF expecting TNB's core net profit to be in the region of between RM450 million and RM550 million.

The earnings excludes the RM2 billion compensation for gas curtailment (January 10 to October 11), which is to be recognised as a one-off item as well as forex translation gain of circa RM600 million due to the appreciation of ringgit against the US dollar and yen as at end-February 12.

"Additionally, the improved results are expected to be driven by better gas supply in the second quarter, which is slightly higher than the corresponding quarter last year. .

"Lower coal cost amid seasonal decline and weak electricity demand in the second quarter (due to festivities season and short period in February) is another positive contributing factor," MIDF added.

MIDF, which tagged TNB with a "buy" recommendation with a target price of RM6.70, said the combined impact would result in lower reliance on alternative fuels like oil and distillate, which is five times costlier than gas.

Nonetheless, for the first half of 2012, TNB's expected core net profit of between RM645 million and RM745 million will likely to fall behind its consensus expectations.

MIDF said coal price was trending down and was now trading at an average price level of US$105 a tonne.

TNB is likely to maintain its estimated average coal price of US$110 a tonne, which is similar to MIDF's 2012 assumption.

It said TNB is unlikely to be affected by the Indonesian government's plans to impose a 25 per cent export tax on coal and base metal in 2012 and 50 per cent from next year to encourage downstream investment in the mining sector.

"We gather from TNB that they are not affected by the coal export tax as it is only applicable to low quality coal. TNB would be exempted since it only imports high quality coals from Indonesia."

Currently, TNB is sourcing 70 per cent of its coal requirements from Indonesia, 20 per cent from Australia and 10 per cent from South Africa.

MIDF said TNB envisaged a four per cent to five per cent growth in electricity demand for this year.

This will be supported by the roll-out of mega infrastructure projects under the Economic Transformation Programme (ETP) initiatives.

"Nevertheless, we continue to maintain a more conservative growth rate of 2.7 per cent, given our in-house view of softening domestic economic activities amid cautious external conditions, with 2012 gross domestic growth of 4.8 per cent.

"We reiterate our buy recommendation, although the expected total return now is at 6.8 per cent (which is lower than our 15 per cent buy definition).

"We expect to see a better second half in 2012 as the coal price is trending down and gas supply issue to be resolved once the Malacca regasification plant is ready in September this year," it added.