Tuesday, November 29, 2011

RHB Research downgrades Tenaga to Underperform, FV RM5

KUALA LUMPUR (Nov 29): RHB Research Institute downgraded TENAGA NASIONAL BHD [] (TNB) to an underperform with a revised fair value RM5.00 (previously RM5.45) after it cut the earnings for FY11 by 11%.

It said on Tuesday the lower fair value was based on unchanged target CY12 PER of 13 times, but also added the stock could be supported by its book value of RM5.53.

RHB Research said Petronas Chemical's management recently highlighted that maintenance on Dec 24, 2011 to Jan 4, 2012 by Petronas at the Guntong-E complex will cut gas supplies to 70% of usual levels.

'Although typically an off-peak period for electricity demand, an overriding concern remains the shortfall in gas supplied to TNB. We gather TNB is currently still only receiving 900-1,000 mmscfd on average in Nov.

'For September and October, we gather that TNB received about 900 mmscfd to 950 mmscfd on average. This implies another loss for TNB in 1QFY12, possibly similar to 4QFY11's loss of around RM500 million,' it said.

The research house said due to lower-than-expected gas supply, we have cut FY11 earnings by 11%. TNB is not too hopeful the gas supply will normalise anytime soon.

'While earnings visibility remains poor, we do not rule out the possibility of a re-rating for TNB, if: 1) some form of compensation (RM2.1 billion in total or 38 sen a share) is paid by Petronas for the earlier gas supply issue; and 2) a tariff hike is approved (government has accepted coal prices should be adjusted to US$110 a tonne from US$85 a tonne, but key issue is implementation),' it said.

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