Research houses maintain 'buy' on Tenaga
Two research houses have maintained their 'buy' call on Tenaga Nasional Bhd (TNB) for its improving outlook and upside from implementation of the cost pass through mechanism.
Hwang DBS Vickers Research in its note said the main Malaysian energy provider had been receiving a larger gas supply from the new Melaka regasification terminal (RGT) since June.
"The additional cost of liquefied natural gas (LNG) will have a neutral impact on group earnings as the government will allow tariff adjustments or continue with the gas compensation scheme, to pass on the rising gas cost," it added.
The research house said TNB's earnings prospects are improving
with efforts to approve the cost pass-through mechanism and longer term plan to achieve regulated returns, which it believes will at least match the energy provider's estimated weighted average cost of capital of eight per cent.
Another research house, Hong Leong Investment Bank, has also maintained its 'buy' rating on TNB and remained positive over the company's power sector restructuring.
Meanwhile, Kenanga Research said it maintained an 'outperform' call on TNB and was the top pick for the power sector.
"We believe that a tariff review is imminent given the conclusion of the 2013 General Elections and LNG for the Melaka RGT is at market price.
"On the other hand, when a new fuel cost pass-through mechanism is in place, Tenaga's earnings are expected to stabilise.
"Its financial performance will depend mainly on its operational
efficiency," the research house said.
Hwang DBS, Hong Leong and Kenanga Research maintained their target price for the energy provider at RM10.80, RM10.35 and RM10.45 respectively.-- Bernama