The ministry, in a statement yesterday, clarified the situation on the short-term agreements
PETALING JAYA: Kenanga Research remains positive on the power utilities sector and advised investors to accumulate in view of the current price weakness.
The research house said it was positive on the sector given its defensive earnings with good visibility. It opined that the current price weakness offers a good opportunity to accumulate.
“Tenaga Nasional Bhd
(TNB) (outperform, target price: RM17.17) remains our sector top pick for its earnings quality profile and index-weighting status. In addition, we also like small cap Pestech (Outperform, target price: RM2) as an alternative play for its explosive earnings growth story,” Kenanga said.
At midday, TNB is trading at RM14.28, down two sen while the FTSE Bursa Malaysia KLCI was little changed. Its trading volume was 70% of the 20-day average for this time of the day. Its has risen some 2.73% so far this year.
Bloomberg analyst consensus rating is equivalent to buy. The utility giant is currently trading at 11.6 times trailing 12-month earnings per share and 11 times its estimates for the coming year.
TNB has been in the news recently. It signed an MoU with Elia System Operator SA (Elia) on Monday to share best practices in capacity building. Last week, TNB signed the first multilateral energy exchange in Asean, the Energy Purchase and Wheeling Agreement (EPWA), to buy energy up to 100 MW from Electricite Du Laos (EDL), Laos.
PublicInvest Research is maintaining its outperform call on TNB with an unchanged target price of RM16.16.
It said on Tuesday the power company had inked an MoU with Elia System Operator SA (Elia), one of the largest transmission system operators in Europe.
The two-year MoU (extendable for another year) is for a strategic collaboration in sharing of best practices in capacity building.
TNB has proposed 13 collaborative projects with Elia, with one of the proposed project said to benefit the regional Asean Power Grid (APG) initiative.
Elia, listed on the Euronext Brussels stock exchange, is the transmission operator for Belgium and Germany, serving 30 million residents. It has 18,000 km of high voltage lines and 30,000 MW of installed capacity in renewable energy.
PublicInvest pointed out the MoU bodes well for TNB’s Advanced Metering Infrastructure (AMI) project and ventures into renewable energy (RE).
“While there is no discernible material financial impact on TNB in the near term, we believe this planned collaboration will help increase efficiencies in the electricity transmission system in Malaysia, and eventually translate into tangible gains over the longer term as energy consumption and demand rise further in the future,” it said.
Meanwhile, Kenanga Research said the power utilities sector was likely to face pressure as rising fuel costs will likely cap TNB’s nearterm earnings despite adjusted on a 6-month lagged basis.
On the other hand, it said the independent power producers (IPPs) were facing selling pressure as the power purchase agreement extension contracts for first generation IPPs effective in second half of 2017 would affect Malakoff and YTL Power’s earnings with lower capacity payments.
“Despite relatively defensive earnings, the power utility sector is trading at undemanding valuations. This is fairly unwarranted, especially for TNB given its index-linked heavyweight status and earnings quality profile where the ICPT mechanism free it from fuel cost movement risk,” Kenanga said.
It has been reported that TNB was eyeing for fast-track power plant to install 600MW to 800MW of additional capacity at Connaught Bridge Power Station in Klang. This could get the additional supply online as early as 2020 to meet the demand growth as well as maintain a comfortable reserve margin of at least 20% which the reserve margin is currently close to.
“This is not unjustified given that TNB had signed an agreement last week to purchase of up to 100MW from Electricite Du Laos (EdL) of Laos via existing transmission grid of EGAT, Thailand over a 2-year period starting January 2018.
“The positive point from the agreement is that TNB is under no obligation to purchase any minimum amount of energy from EdL,” Kenanga said.
The research house believes that TNB would be allowed to continue passing through fuel cost risk to end-consumer in the future. As such, a new higher base tariff from 38.53 sen/kWh currently is likely from next year.
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