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‘Good time’ to buy TNB shares


KUALA LUMPUR: Tenaga Nasional Bhd’s (TNB) recent share price decline offers an opportunity for investors to pick up the stock, according to analysts.

They argued the recent tariff hike would provide significant valuation kicker to the group.

Shares in TNB had fallen 5.2% in the past three days from a record high of RM11.60 to close at RM11 yesterday.

The stock is a top pick at AmResearch, which values the counter at RM14.90 while Hong Leong Investment Bank has a target price of RM11.90.

The tariff hike was one of TNB’s many re-rating catalysts, analysts said, adding that TNB was also aggressive in pursuing its non-regulated business both locally and overseas.

AmResearch said the tariff hike would drive TNB’s earnings revision cycle over the coming quarters.

It said while there were some political opposition to the tariff hike, TNB’s management held to the view that the new rate structure would be imposed as announced.

“We also expect the competitive bidding process to build new power plants to drive down the group’s prospective cost structure together with the implementation of the ongoing incentive-based regulatory measures.

“Additionally, coal prices which have risen over the past two months to almost US$85 per tonne (versus US$87.50 per tonne embedded in the new tariff) is likely to moderate post winter season,” it said.

AmResearch said the counter traded at a decent price-to-book value (P/BV) of 1.8 times, which is at the mid-range of adjusted 1.1 times – 2.7 times over the past five years.

TNB also offers a fair calendar year 2014 forecast price-to-earnings ratio (P/E) of 12 times, compared with the stock’s three-year average band of 10 times-6 times.

The research house said its foreign shareholding which had risen to 27% was not a concern as there was no limitation at the moment on foreign shareholding level.

“We have fine-tuned TNB’s FY14 forecast to FY16 forecast earnings by 3% to 5% largely due to adjustments in our assumptions for the group’s capacity charge payments to independent power producers,” AmResearch said.

It said the savings from the reduction in capacity charge since March 1, 2013 for the first generation power purchase agreements which have been extended by another 10 years, would be kept in a special account, which was at the disposal of the Energy Commission.

It is uncertain at this stage what the funds will be used for, but AmResearch thinks it will likely be used as part of an earlier proposed fuel stabilisation fund, as the Government has proposed for fuel subsidies to be reduced biannually.

In addition, AmResearch said the new tariffs for Sabah Electricity (SESB) at 34.5sen per kWh, was still 4 sen below the peninsula’s 38.5 sen per kWh, but higher revenue will raise TNB’s earnings further by RM200mil.

Meanwhile, the Energy Commission is expected to call for a competitive bidding for two gas-fired power plant with a total capacity of 2,000MW under Track 4A and Track 4B this year, after the award for Project 3B involving a greenfield 2,000MW coal-fired power plant, which is likely to be secured by 1Malaysia Development Bhd (1MDB) .

“As TNB maintains its near monopoly status in the transmission and distribution of electricity in Peninsular Malaysia, the group has the natural advantage in any competitive bid, including Track 4A-4B, for new power generation.” it said.

“We expect the bidding process to continually drive down TNB’s cost structure, which will positively accrue to the group’s earnings given that the base tariff has been set until 2017.”


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