KUALA LUMPUR: Affin Hwang Research has maintained its Buy call on Tenaga with a target price of RM17.50, it said in a note on Friday.
"Our new TP reflects 20-22% increases to our FY15-17E earnings after imputing a lower effective tax rate of 10% due to reinvestment allowances and our assumption of lower coal costs of USUS$70/MT (from US$80/MT).
"We like TNB for its rebound in electricity-sales growth, benign coal prices and indirect fuel-cost pass-through implementation," it noted.
The research house said TNB's 1QFY15 results were above its and consensus expectations as core net profit of RM2.11bil accounted for 36% and 35% of its and consensus full-year estimates, respectively.
"While management toned down FY15 electricity-sales growth expectation to 3%-4% (from 4-5%), we remain positive on TNB as earnings risks is minimal. Despite the strengthening US$, TNB now enjoys a margin of over-recovery for coal-related fuel costs (aided by higher generation mix from coal and benign coal prices), which is more than sufficient to offset the use of the more expensive LNG.
"Hence, the postponement of the electricity tariff review in 2015 would not have a material impact to TNB, we believe. For 1QFY15, TNB generated RM200mil in over-recovery in fuel
costs, which management would set aside as non-core earnings," it said.
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