TNB gets 16% upwards revision in FY15 forecast earnings

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Tenaga Nasional Bhd
(Nov 6, RM13.02)
Maintain buy with target price of RM15.13:
Energy, Green Technology and Water Minister Datuk Seri Dr Maximus Ongkili has said that the existing electricity tariffs will be maintained until June 2015.

Additionally, the price of piped gas supplied by Petronas to the power sector is also left unchanged at RM15.20 per million metric British thermal unit (mmbtu).

Although the electricity tariff is unchanged, the government had allowed savings from the reduction in capacity charge (since March 1, 2013) for the first-generation power purchase agreements (PPAs) to be used to offset the cost under recovery due to the higher price of liquefied natural gas at RM47/mmbtu compared to the threshold of RM41.68/mmbtu. This was despite financial year 2014 (FY14) coal costs of US$75.40 (RM251.83)/tonne being below the tariff’s assumption of US$87.50/tonne.

The government’s move is in line with its earlier proposal to use the savings, which have been kept in a special account at the disposal of the Energy Commission, as part of a fuel stabilisation fund. The balance of PPA savings is estimated to be RM170 million after deducting the imbalance cost pass-through costs needed to maintain the current tariffs.

Following the government’s decision, TNB will gain a one-off boost of RM1.148 billion to its FY15F pretax profit (RM848 million from the PPA savings and RM300 million attributed to savings from lower coal costs (based on US$70/tonne), which will be largely offset by higher LNG prices (based on RM47/mmbtu)). This translates to a 16% upwards earnings revision to our FY15 forecasts. Our estimates for FY16F to FY17F are maintained. — AmResearch, Nov 6

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This article first appeared in The Edge Financial Daily, on November 7, 2014.