Tenaga up 2.8% on analyst upgrades ahead of 1Q results today

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KUALA LUMPUR (Jan 22): Tenaga Nasional Bhd (TNB) (fundamental: 1.30; valuation: 1.00) saw its share price rose as high as 40 sen or 2.8% this morning on MIDF Research's expectation the utility company would today post a good set of result for its first financial quarter ended Nov 30, 2014 (1QFY15).

As of 11.21am, the counter had retreated to RM14.60, up 10 sen or 0.69%, with 1.88 million shares traded.

“We are expecting TNB to post a good set of result in 1QFY15 on the back of lower generation cost due to favourable generation mix and fuel cost,” MIDF said in its research note today.

The research house has upgraded the counter to "buy” from “neutral”, and revised its target price to RM16.34 from RM14.23.

MIDF also said with the additional coal generation capacity from the upcoming Manjung 4 coal power plant in March 2015, TNB would be able to fully capitalise on cheaper coal.

Coal prices have been trending down since January 2013 and are anticipated to remain low in FY15.

Moreover, MIDF pointed out that liquefied natural gas (LNG) prices could go down along with crude oil prices as well as most gas prices are indexed to crude oil.

"This, in our view, would provide a further boost to TNB’s bottomline,” MIDF said.

MIDF said it was also not surprised by the government’s decision to maintain the current tariff structure, as it was in line with the expected low fuel cost for TNB.

“Nonetheless, we believe that any potential downside risk arises from sudden increment in fuel cost would be well supported by the fund generated from PPA (Power Purchase Agreement) savings which has a balance of approximately RM170 million,” MIDF added.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)