Kenanga raises estimates on Tenaga on cheaper fuel prices


  • Analyst Reports
  • Thursday, 28 Nov 2019

KUALA LUMPUR: Downward trending fuel prices would likely lead to lower generation costs for Tenaga Nasional Bhd in the final quarter of 2019, says Kenanga research.

"With fuel prices trending downward especially coal which fell 11% YoY in 9MFY19, Tenaga is likely to register lower generation costs in the coming 4QFY19 which could post resilient numbers although 2H is traditionally a weaker period," it said.

However, it added that the lower fuel costs would result in a lower effective tariff rate in 1HFY20 under the ICPT mechanism.

The research house maintained market perform on the stock as it raised its forecasts for FY19 and FY20, resulting in a higher target price of RM14.30.

In its recently concluded quarter, Tenaga's earnings beat expectations as coal prices declined while electricity demand grew.

Core profit for the quarter jumped 43% year-on-year (y-o-y) to RM1.37bil, bringing 9MFY19 core profit to RM4.01bil or 12% higher over the previous corresponding period.

According to the research house, the 6% lower generation opex in 3Q aided the earnings growth although a 9% higher generation opex capped year-to-date earnings from growing higher.

"This was due to higher requirement mix for the expensive LNG as gas volume rose 7% for 9MFY19 to 1,030mmscfd with average LNG price jumping 13% to RM35.03/mmbtu," it said.

However, Kenanga noted that coal prices were generally on the downtrend with average costs falling 29% y-o-y in 3Q and 11% y-o-y in 9M19.
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