"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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