Research Houses Maintain 'Buy' Call On TNB

KUALA LUMPUR, July 17 (Bernama) -- Affin Investment Bank has maintained its 'buy' call on Tenaga Nasional Bhd (TNB) with a discounted cash flow derived target price of RM14.70 from RM12.46.

The investment bank said that the government is committed to the implementation of incentive-based regulation (IBR).

However, the fuel cost pass-through (FCPT) review might be delayed and negatively impact TNB's short-term earnings, it said in a research note today.

"We share management's optimism on the eventual implementation and expect the FCPT review, once announced, to re-rate the share price," it said.

Under the FCPT mechanism, the electricity tariff would be adjusted based on the international gas price every six months.

AllianceDBS Research also maintained its 'buy' rating based on TNB's promising demand outlook and improving earnings visibility arising from IBR implementation. It raised TNB's target price to RM14.30 from RM13.30.

"Discussions on the tariff adjustment due on July 14 are ongoing and TNB is confident of passing on the incremental LNG, oil and distillate costs under IBR return regime," it said.

The research house expects the higher LNG cost to be partially compensated by lower coal price and if there is a revision to the subsidised gas price, through the FCPT mechanism.

"We estimate that TNB requires a 1.7 per cent tariff hike to offset the proposed RM1.50 per mmbtu hike in subsidised gas cost under IBR," it said.

At 12.30pm, Tenaga Nasional shares fell 16 sen to RM12.30 after reporting lower pre-tax profit due to higher operating costs, on the back of RM11.51 billion in revenue.


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