Tenaga’s performance looking good

THE latest quarter results of Tenaga Nasional Bhd (TNB) pointed to an improved operating performance that resulted from reduced operating costs and lowered debts. 

The results also showed the efforts made in the collection of delinquent accounts, reduced power theft, and lower transmission and distribution losses.  

TNB announced last week a 70% surge in net profit to RM572.8mil that was partly attributed to translation gains on its foreign currency denominated debts.  

Some initial results in improving efficiencies have been achieved and these efforts point to the possibility of more progress to be made.  

In addition, the group's exports continue to expand. In the first nine months of the current financial year, exports to Thailand increased by RM170mil.  

As TNB contains its operating costs, sales growth of electricity will ensure the group's earnings will continue to expand, possibly at a double-digit growth rate in the low teens.  

This does not take into account foreign exchange (forex) translation gains that are likely to accrue as the ringgit appreciates.  

Some 50% of TNB's borrowings of over RM30bil are forex debts, of which about 28% are denominated in US dollars.  

A 5% rise in the ringgit would produce a translation gain of more than RM700mil for TNB.  

Datuk Che Khalib Mohamed Noh

At the same time, the group has shown the will to reduce its massive debts, which are believed to have substantially increased during the regional financial crisis when the US dollar rose sharply.  

TNB's latest third quarter results showed a RM2bil reduction in borrowings to about RM30.5bil.  

It is hoped the group will reduce, rather than increase, its forex borrowings to avoid the potential for large forex losses some time in the future.  

It should follow the examples of YTL Power International Bhd and Malakoff Bhd, which borrowed entirely in ringgit for their power plants in Malaysia, thus matching the currencies of their costs and revenue.  

Equally important, TNB should exclude the accumulated forex translation losses from the calculation of their unit operating costs, which would be used as the basis for a tariff hike.  

Even so, a tariff hike seems inevitable at some point in the future, given the Government's stance in gradually reducing subsidies for the public. The system will then be based on a user-pay basis.  

Presently, electricity is subsidised by Petroliam Nasional Bhd, based on the low price it charges for gas supplied to TNB.  

This subsidy, which amounted to over RM6bil last year, is expected to be reduced when the gas supply contract expires at the end of this year and new rates are negotiated.  

TNB would be able to justify a tariff hike if it has to pay more for gas, with the tariff increase exceeding the higher gas cost, so that it would obtain a net tariff increase.  

In the course of the year, TNB's reserve margin will continue to drop as electricity sales improve without any new power plants coming onstream.  

Thus, the reserve margin – its surplus generation capacity – will drop to about 30% over the next 12 months from 40% presently. This will raise its plant utilisation and reduce the unit operating costs. 

 TENAGA :  [Stock Watch]  [NewsTENAGA-CA :  [Stock WatchTENAGA-LA :  [Stock Watch]

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