Friday, October 21, 2011

Maybank IB Research cuts Tenaga FV to RM5.90

KUALA LUMPUR Maybank Investment Bank Research has reduced TENAGA NASIONAL BHD []'s target price from RM6.60 a share to RM5.90.

It said on Friday, Oct 21 that it believes the upcoming 4QFY11 results to be released on Oct 28, will be very weak.

Maybank Research said was due to insufficient gas supply, it had to use oil and distillates as a fuel source to generate power, which is a significantly more expensive and money losing proposition.

'We maintain our HOLD call, with a lower target price of RM5.90 a share (from RM6.60 a share) after imputing the impact of gas supply issue. We favour the PER methodology and continue to apply Tenaga's long term average of 13 times on FY2012 forecast earnings to derive our target price,' it said.

The research house estimated Tenaga will report a loss of RM230 million for 4QFY11, which is slightly better than RM478 million core net loss achieved in 3QFY11.

'Gas supply disruption will force Tenaga to burn oil and distillates, and we estimate this to add RM1.2 billion to cost,' it said.

Maybank Research said its new target price of RM5.90 is based on Tenaga's historical average PER of 13 times (the valuation basis is unchanged).

'We think this is a fair valuation given that our secondary valuation method of price-to-book is below 1.0 times. It is very rare for a monopolistic utility company to be trading below book, and therefore that's where we see supporting intrinsic value in Tenaga,' it said.

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