TNB settles at RM8.40 on absence of fresh leads

PETALING JAYA: In the absence of fresh leads, Tenaga Nasional Bhd's (TNB) share price yesterday drifted to RM8.40, close to its six-day average of RM8.41 after the counter surged RM1.70 on June 6.

Dealers attributed the rally to investors reacting to news of the revised electricity tariff rates as the market's performance had been lacklustre over the past few weeks.

“The general mood of the market has been cautious since the fuel price increase. TNB's share price has probably settled for now but this could change should there be further corporate developments,” a dealer told StarBiz.

TNB said the electricity tariff hike, effective July 1, was to cover the gas price increase and to partially offset the rise in coal prices, up 170% since 2007.

On June 4, the price of gas was revised upwards by 123% to RM14.31 per million British thermal units (mmBTU) from RM6.40 per mmBTU along with increases in petrol and diesel prices.

MIMB Investment Bank said the tariff increase would help alleviate TNB's rising fuel costs pressure.

“An estimated 24% tariff adjustment would boost TNB's revenue by RM5.37bil for the financial year ending Aug 31, 2009 (FY09). This is enough to cover the increase in fuel costs,” it said in a June 13 note.

However, an analyst from the brokerage opined that TNB's future earnings could be at risk, especially if coal prices continued to escalate.

“Coal supply cannot cope with demand. Backed by economic growth from emerging markets like China, the demand for coal will be high for power generation,” he said.

TNB could also face further challenges in renegotiating power purchase agreements (PPA) with independent power producers (IPPs) following the Government's move to impose windfall tax of 30% on IPPs, the analyst said.

“A PPA reform is essential but the new windfall tax could deter IPPs from coming back to the negotiation table,” he added.

OSK Research, meanwhile, has reduced its electricity demand growth forecast by 2% to 2.4% for FY09 and FY10 to account for a slowdown in electricity demand given the inflationary pressures across the economy.

It said TNB would likely secure a 2% base tariff hike in FY10, pushing OSK's assumption for tariff hike increase in FY10 to 6.6% from 1.9% previously.

“The tariff hike in FY10 is enough for us to raise TNB's net profit forecast by 25% and our target price to RM10.20,” OSK said.

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