KUALA LUMPUR: The stellar set of quarterly earnings has given an extra push to Tenaga Nasional Bhd’s (TNB) share price, lifting the utility stock to a new record high of RM13.50 yesterday.
The share price of TNB, which is benefitting from the low coal prices, has outperformed the FBM KLCI with an 18.6% gain year-to-date, compared with the benchmark’s 0.73% loss.
There are still legs for the rally on TNB’s share price, according to fund managers and investment analysts who track the stock, given the group’s better earnings visiblity.
Areca Capital Sdn Bhd chief executive officer Danny Wong deemed TNB — which he said has a predictable earnings growth in the near future — to play a significant role in a diversified portfolio.
“In this environment where commodity prices such as oil and gas and crude palm oil are low, and where [in the broader market] there are lesser ideas of what to invest in, TNB could stand out well as one of the core stocks to have that could contribute to the bottom line of a [diversified] portfolio,” Wong told The Edge Financial Daily over the phone.
Wong said in terms of risk reward, one should look at TNB as a moderate growth stock for the medium to long term, adding that the utility group serves as a proxy to domestic economic growth as the electricity consumption tends to move in line with economy activities.
UOB Kay Hian has factored in electricity demand growth of 3.5% and 3.2% for financial year 2015 (FY15) and FY16 respectively. TNB’s electricity growth came in at 2.5% in FY14, down from 3.8% in FY13.
TA Investment Management Bhd chief investment officer Choo Swee Kee said while the current share price has already factored in TNB’s higher earnings for FY14, ended Aug 31, he believes that there is still room for the company to show improved earnings in the next 12 months.
“At this point when input costs [such as coal] are down, barring no changes or reduction in tariff rates anytime soon, this will result in improved earnings and margins of the company,” Choo said, adding that an upside to TNB will be positive on the FBM KLCI too.
TNB announced a net profit of RM6.47 billion for FY14, up 20.8% from RM5.35 billion the year before. Revenue was higher at RM42.7 billion against RM37.1 billion in FY13. Earnings per share grew to 114.59 sen in FY14 from 96.13 sen.
Nonetheless, some analysts pointed out that TNB’s earnings would have been even better should it have managed to pass-through the additional fuel cost of some RM600 million incurred as the result of usage of more gas.
The total fuel costs increased 18% to RM23.5 billion in FY14, according to analysts, due to coal-fired power plant outages.
“If the regulatory bodies allow these additional costs to be recouped from higher tariffs or savings from the extensions of the first-generation power plants, there will be an 8% boost to FY15 forecast earnings,” AmResearch said.
UOB Kay Hian, for one, opined that while the government missed the June fuel cost pass-through mechanism review, the cost recovery probability appears high, citing the government’s adjustment of the gas price for the non-power sector by 2.3% last week.
Another catalyst for the stock would be the commissioning of Manjung 4, a 1,000mw coal-fired power plant next April, said UOB Kay Hian, adding that it will boost TNB’s FY16 earnings and increase its generation market share from 53% to 61%.
This article first appeared in The Edge Financial Daily, on November 4, 2014.