Wednesday, January 20, 2010

Higher Q1 earnings seen for TNB on strong demand

PETALING JAYA: Tenaga Nasional Bhd’s (TNB) results for the first quarter ended Nov 30, to be released today, are expected to show improvement in net profit to about RM500mil on the back of stronger power demand.

According to HwangDBS Vickers Research’s latest report, the better earnings would be led by sustained power demand growth since March last year together with a broad-base recovery in the industrial segment.

“We estimate that every 1% increase in power demand would raise TNB’s first-quarter net earnings by 8%,” the report noted.

TNB registered a net profit of RM917.9mil on the back of RM28.8bil revenue for the financial year ended Aug 31, 2009 (FY09).

CIMB Research also expects TNB’s core net profit to come in at RM450mil to RM500mil, which is 11% to 23% higher quarter-on-quarter.

“We expect results to be broadly in line if core net profit comes in around 19% to 21% of its full-year projection, as the remaining quarters should be better due to stronger pick-ups on the demand front,” the brokerage said in a report.

Meanwhile, Kenanga Research said the results would be within expectation based on its net profit forecast of RM2.82bil for FY10.

It also noted that higher coal generation costs would not erode TNB’s first-quarter earnings as seen in the previous quarters because average coal prices remained at US$85 per tonne during the quarter.

Analysts generally concurred that the results announcement would likely be relatively uneventful as the focus would be on the Government’s impending decision on the scheduled January 2010 tariff review.

Kenanga Research said the best-case scenario should result in a 13.9% increase in tariffs to 35.7 sen kwh, raising its profit forecast by 47%.

However, there was a possibility of tariff remaining a status quo as it may negate pump-priming multiplier effect, it added.

Meanwhile, HwangDBS expects low earnings risk for TNB, going forward, as a potential increase in subsidised gas cost (currently at RM10.70 per million British thermal units) was likely to be compensated by tariff hike. This is evident in the informal cost-pass-through that TNB has enjoyed since 2006.

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