KUALA LUMPUR – Kenanga Investment Bank Bhd (Kenanga IB) has upgraded its rating recommendation on Tenaga Nasional Bhd (Tenaga) to “outperform” from “market perform” as it continues to see value in the utility giant after the recent weakness in its share price.
The investment bank has maintained its forecasts on the company and target price of RM10.00 per share as it has taken into account the downtrend in fuel costs.
“Over a longer period of time, the volatility in fuel costs has a neutral impact on Tenaga as the over- or under-recovery of fuel costs will eventually be passed through to the end-user or the government within a six-month time lag via the Incentive-Based Regulation framework,” it said in a note today.
Kenaga IB said the recent weakness in both coal and gas prices to the tune of 20% and 25% off their recent peaks have confirmed lower Imbalance Cost Pass-Through receivables for Tenaga.
It continues to like Tenaga for “its dominant position in power generation, transmission and distribution in Malaysia, its earnings defensiveness backed by a resilient domestic economy, assets that are largely regulated, and its heavyweight index-linked stock status.”
To address the concerns over Tenaga’s coal-fired power capacity, the group will completely phase out coal-fired plants by 2045 from the 48% “gen-mix” currently.
Tenaga will repower certain retired coal plants using highly efficient combined-cycle gas turbines with cleaner fuel such as gas, and hydrogen-ready technology (green tech).
At the same time, the group also has an aggressive expansion plan for its renewable energy business with installed capacity target of c.14GW by 2050 from 0.4GW currently.
As at 10.44 am, TNB rose nine sen to RM9.14 with 1.37 million shares changing hands. – Bernama, May 9, 2023
