TNB sees marginal net profit growth
Thursday, January 20, 2011
KUALA LUMPUR: Tenaga Nasional Bhd's (TNB) net profit for the first quarter ended Nov 30, 2010 increased marginally to RM712.9mil from RM706.3mil a year earlier while revenue grew 5.3% to RM7.73bil from RM7.34bil during the same period.
The company's performance reflected a 6.1% increase in operating expenses to RM6.56bil from RM6.18bil previously, mainly attributed to the higher cost of electricity generation from the increase in demand and coal prices.
As a result of the higher operating expenses incurred, TNB reported a lower earnings before interest, tax, depreciation and amortisation (EBITDA) margin of 28.5% compared to 29.5% recorded in the previous corresponding quarter.
Speaking about the group's electricity demand growth at a press conference yesterday, TNB chairman Tan Sri Leo Moggie said the growth was driven principally by the commercial and domestic sectors that recorded demand growth of 7.7% and 9% respectively.
Tan Sri Leo Moggie points to a report detailing the company’s financial performance while Datuk Seri Che Khalib Mohamad Noh (left) and chief financial officer Mohamed Rafique Merican look on.
Commenting on the impact of higher coal prices on TNB, president and chief executive officer Datuk Seri Che Khalib Mohamad Noh said that with generation from coal-fired power plants increasing to 40.2% to meet increasing demand, the higher coal price had increased total operating costs.
With current coal prices continuing to rise, it is now critical that the fuel cost pass-through mechanism be considered to ensure TNB's rising costs are adequately compensated, he said.
Under the current tariff, TNB's coal cost is only covered up to US$85 per tonne. Che Khalib said that for every US$10 per tonne increase in coal prices, TNB's earnings would deteriorate by about 18% in terms of profitability.
“We are projecting coal prices to average at about US$110 for the whole year. However, considering that the ringgit has appreciated against the US dollar, we think coal prices will affect us by about 20% for the whole financial year,” he said.
Going forward, Che Khalib said that TNB's bottomline for its second quarter ending Feb 28, 2011 would be the most affected as coal prices had increased in the past couple of months.
“Order (for coal) for the second quarter is made in the first quarter, so our (earnings in the) second quarter will be hardest hit. It will be affected, definitely.
“Whatever we purchase now will only be delivered two or three months from the date we fixed the order. Coal is not something that you buy today, it gets delivered tomorrow,” he said.
Che Khalib said coal prices had gone up “quite a substantial amount” over the past two months due to shortage of coal as a result of the Queensland (Australia) flooding and also because the demand for coal had increased during the period.
“We hope the price will ease after February, after the winter period, and then we will be able to determine what will be a more realistic coal price for the full year. But based on the trend in the last two months, we believe it will be over US$100.”
On another note, Che Khalib said the higher coal prices would not have an impact on the development of TNB's three new power plant projects located in Ulu Jelai, Pahang, Hulu Terengganu, Terengganu and Jana Manjung in Perak.
“Not really, because over the next two years, we can still fund our projects via internally generated funds. For the Jana Manjung project, that will be undertaken through an SPV (special purpose vehicle), which will raise its own capital via loans or the issuance of bonds.
“(As for) the existing two, Ulu Jelai and Hulu Terengganu, even though it's about RM3bil, it's over a period of six years. That's about half a billion a year. We should be able to finance these projects through our internally generated funds. It's not like we need that RM3bil immediately.”
Asked about a potential tariff hike, Che Khalib said: “We have not done anything.”
Meanwhile, updating on the renegotiation between the Government and independent power producers (IPPs), he said the Government was still in discussion with the IPPs.
“We need to respect the agreement that was signed. Ultimately, what is important is to ensure that IPP renegotiation will benefit the people,” Che Khalib said, adding that TNB hoped the talks between the IPPs and the Government would be concluded this year.
On another note, Moggie said nuclear power would be a viable alternative source of fuel for power generation in the future.
“The experience from many countries that use nuclear power has been that it has a much more stable pricing over the long term. They have been using nuclear power and have been able to maintain a reasonably stable tariff over a long period of time.”
The company's performance reflected a 6.1% increase in operating expenses to RM6.56bil from RM6.18bil previously, mainly attributed to the higher cost of electricity generation from the increase in demand and coal prices.
As a result of the higher operating expenses incurred, TNB reported a lower earnings before interest, tax, depreciation and amortisation (EBITDA) margin of 28.5% compared to 29.5% recorded in the previous corresponding quarter.
Speaking about the group's electricity demand growth at a press conference yesterday, TNB chairman Tan Sri Leo Moggie said the growth was driven principally by the commercial and domestic sectors that recorded demand growth of 7.7% and 9% respectively.
Tan Sri Leo Moggie points to a report detailing the company’s financial performance while Datuk Seri Che Khalib Mohamad Noh (left) and chief financial officer Mohamed Rafique Merican look on.
Commenting on the impact of higher coal prices on TNB, president and chief executive officer Datuk Seri Che Khalib Mohamad Noh said that with generation from coal-fired power plants increasing to 40.2% to meet increasing demand, the higher coal price had increased total operating costs.
With current coal prices continuing to rise, it is now critical that the fuel cost pass-through mechanism be considered to ensure TNB's rising costs are adequately compensated, he said.
Under the current tariff, TNB's coal cost is only covered up to US$85 per tonne. Che Khalib said that for every US$10 per tonne increase in coal prices, TNB's earnings would deteriorate by about 18% in terms of profitability.
“We are projecting coal prices to average at about US$110 for the whole year. However, considering that the ringgit has appreciated against the US dollar, we think coal prices will affect us by about 20% for the whole financial year,” he said.
Going forward, Che Khalib said that TNB's bottomline for its second quarter ending Feb 28, 2011 would be the most affected as coal prices had increased in the past couple of months.
“Order (for coal) for the second quarter is made in the first quarter, so our (earnings in the) second quarter will be hardest hit. It will be affected, definitely.
“Whatever we purchase now will only be delivered two or three months from the date we fixed the order. Coal is not something that you buy today, it gets delivered tomorrow,” he said.
Che Khalib said coal prices had gone up “quite a substantial amount” over the past two months due to shortage of coal as a result of the Queensland (Australia) flooding and also because the demand for coal had increased during the period.
“We hope the price will ease after February, after the winter period, and then we will be able to determine what will be a more realistic coal price for the full year. But based on the trend in the last two months, we believe it will be over US$100.”
On another note, Che Khalib said the higher coal prices would not have an impact on the development of TNB's three new power plant projects located in Ulu Jelai, Pahang, Hulu Terengganu, Terengganu and Jana Manjung in Perak.
“Not really, because over the next two years, we can still fund our projects via internally generated funds. For the Jana Manjung project, that will be undertaken through an SPV (special purpose vehicle), which will raise its own capital via loans or the issuance of bonds.
“(As for) the existing two, Ulu Jelai and Hulu Terengganu, even though it's about RM3bil, it's over a period of six years. That's about half a billion a year. We should be able to finance these projects through our internally generated funds. It's not like we need that RM3bil immediately.”
Asked about a potential tariff hike, Che Khalib said: “We have not done anything.”
Meanwhile, updating on the renegotiation between the Government and independent power producers (IPPs), he said the Government was still in discussion with the IPPs.
“We need to respect the agreement that was signed. Ultimately, what is important is to ensure that IPP renegotiation will benefit the people,” Che Khalib said, adding that TNB hoped the talks between the IPPs and the Government would be concluded this year.
On another note, Moggie said nuclear power would be a viable alternative source of fuel for power generation in the future.
“The experience from many countries that use nuclear power has been that it has a much more stable pricing over the long term. They have been using nuclear power and have been able to maintain a reasonably stable tariff over a long period of time.”
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