KUALA LUMPUR (Oct 14): Earnings of Tenaga Nasional Bhd (TNB) in the fourth quarter of financial year 2014 (4QFY14) ending Aug 31 is likely to improve both quarter-on-quarter (q-o-q) and year-on-year (y-o-y), according to CIMB Investment Bank.
This, the bank said, was given that TNB’s use of natural gas and distillates during the quarter has declined compared to previous quarters, as shown by data provided by the Energy Commission (EC).
"This implies that its coal utilisation has normalised, allowing it to take advantage of the current low coal prices which will probably boost TNB's earnings during the quarter," CIMB analayst Faisal Syed Ahmad said in a note to clients today.
Throughout the whole quarter, gas utilisation was approximately at 1,230 million standard cubic feet per day (mmscfpd), a 10 to 11% lower against the preceding quarter (3QFY14) of 1,378 mmscfd, the note read.
While the investment bank is positive on TNB’s 4QFY14 earnings, Faisal noted that TNB's current valuations of 11-12 times of financial year 2015 (FY15)’s earnings has priced in all positive near-term earnings potential for the company, including the higher coal utilisation and lower coal prices.
"While we think that TNB should trade higher, closer to the market price to earnings ratio (PER) of 15 to 16 times, the fuel cost pass-through (FCPT) mechanism has to be in place to assure investors of greater long-term earnings visibility," Faisal added.
"Given the current uncertainty with regards to the implementation of the mechanism, we maintain our view that TNB's share price upside is likely to be capped for now."
Faisal also believed it is unlikely to have a tariff hike in the near term although the government is looking to raise electricity tariffs by the end of 2014.
"We think this will be difficult to implement because it [the hike] will likely bring TNB's improved earnings during the quarter into the spotlight.
"Various parties may argue that a tariff hike is not needed and will only burden consumers," he added.
As at mid-day, TNB lost 2 sen to settle at RM12.46 with 4.34 million shares done, giving it a market capitalisation of RM70.32 billion.