TNB shares continue to slide

Wednesday, April 9, 2008

The Star yesterday;

PETALING JAYA: Tenaga Nasional Bhd (TNB) shares, which have been on a downtrend since April 2, extended its losing streak yesterday.

Heavyweight TNB - a key component stock of the KL Composite Index - slipped 15 sen, or 2.05%, to RM7.15 yesterday on volume of 7.9 million shares. An analyst said the counter took a big hit after the shocking general election results.

“However, the decline in its share price accelerated after the Sabah government decided to scrap the controversial RM1.3bil coal-fired power plant,” the analyst said, adding that the stock price was expected to remain range-bound unless new developments arose.

Another analyst said although there was some selling yesterday, investors could be buying into the stock again after the slight decline, adding that the company's fundamentals were still intact.

The utility company's market capitalisation (cap) had dropped to RM31.8bil as at March 31, making it the eighth largest company on Bursa Malaysia in terms of market cap. As at end-February, TNB was the fourth largest company.

Meanwhile, RHB Research said in a report that TNB's bottomline was unlikely to be affected by the loss of the project.

“We highlighted that the project was insignificant to TNB, accounting for 2.7% of its capacity. Therefore the loss of the project also has minimal impact on TNB's earnings,” it said.

RHB Research maintained its “market perform” call on TNB with a target price of RM8. “Longer term, we believe there is potential upside if the government approves a tariff hike to cover TNB's higher cost of coal,” it said.

“The positive implication of this event was that the project was fraught with controversy from the beginning. Not only was the price tag expensive, the minority shareholders of the project also seemingly had no experience in the power business,” JP Morgan said in its report.

MIMB Investment Bank said a tariff hike would not seem possible in the near term, meaning that rising coal prices would erode its earnings.

“Spot coal prices have hit record high at US$120 (about RM381) per tonne, which is double from a year ago.

“We do not expect the industry-wide reforms, including a fuel-cost pass-through mechanism, to conclude at least in the next year. Hence, we are raising our coal price assumptions for the financial year ended Aug 31 (FY08) and FY09 to US$68 and US$75 per tonne respectively from US$60 per tonne,” it said in a report.


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