KUALA LUMPUR: AmResearch Sdn Bhd is maintaining its Neutral call on the power sector with a BUY call on Tenaga Nasional underpinned by the down cycle in coal prices while it maintains Buy call on YTL Power and a Hold on Malaysia Mining Corp and Tanjong plc.
In a research note issued on Wednesday, the research house reiterated its Buy call on YTL Power, which offers attractive yields of up to 10% (including treasury share distributions) while the group, which has a RM9bil gross cash hoard, was on the prowl for new acquisitions amid opportunities presented by the global liquidity crisis.
AmResearch said it was maintaining its Hold recommendation on MMC given the earnings dilution from the Senai Airport acquisition. Tanjong also remained a Hold given the absence of catalysts for the group’s power and gaming divisions while Tropical Islands has yet to turnaround.
Source : The Star
On the depreciating ringgit, the research house said Tenaga could also be adversely affected by the weaker local currency as the group had foreign borrowings of RM10.9bil and fuel costs contracted in US dollars.
A 10% depreciation of the ringgit would lead to a RM620mil increase in the annual cost of coal, based on US$120/tonne at an exchange rate of RM3.50 vs US$1 and Tenaga’s coal requirement of 15 million tonnes and a RM53mil increase in annual interest costs.
“This could shave RM505mil or 20% from our FY09 earnings forecast of Tenaga,” it said.
Hence, the research house said it believed its earnings forecasts for FY09-11 were still intact for Tenaga. It incorporated the expected slowdown in electricity consumption and additional capacity payments from the Jimah coal-fired power plant.
AmResearch maintained its forecasts for YTL Power and Tanjong plc, which have relatively resilient earnings profile backed by their power purchase agreements. For MMC, it might lower its forecasts given that the scope of the works may be reduced for its RM12.5bil electrified double-track rail project.
On the power renegotiations with the independent power producers (IPPs), it said the obstacles to the power remain unchanged with regard to the adverse impact on the capital market and the country’s sovereign rating.
Any de-regulation to the power sector and electricity tariffs would have to take into account natural gas subsidies, which will still be in place for the next 15 years. Currently, natural gas accounts for 68% of Peninsulas Malaysia’s power generation.
AmResearch said the government’s repeated attempts to restructure the PPA stems from Tenaga’s burden of fixed capacity payments to the IPPs while being subjected to the recent escalation in fuel costs and slowing electricity demand growth in tandem with a likely contraction in GDP expansion.
Moreover, Tenaga’s capacity payments were expected to increase by RM1bil annually with the commissioning of the 1.400MW Jimah coal-fired power plant, which would commence over two phases in January and July 2009. This would cause peninsula Malaysia’s reserve margin to rise from 40.8% currently to 47%.
In a research note issued on Wednesday, the research house reiterated its Buy call on YTL Power, which offers attractive yields of up to 10% (including treasury share distributions) while the group, which has a RM9bil gross cash hoard, was on the prowl for new acquisitions amid opportunities presented by the global liquidity crisis.
AmResearch said it was maintaining its Hold recommendation on MMC given the earnings dilution from the Senai Airport acquisition. Tanjong also remained a Hold given the absence of catalysts for the group’s power and gaming divisions while Tropical Islands has yet to turnaround.
Source : The Star
On the depreciating ringgit, the research house said Tenaga could also be adversely affected by the weaker local currency as the group had foreign borrowings of RM10.9bil and fuel costs contracted in US dollars.
A 10% depreciation of the ringgit would lead to a RM620mil increase in the annual cost of coal, based on US$120/tonne at an exchange rate of RM3.50 vs US$1 and Tenaga’s coal requirement of 15 million tonnes and a RM53mil increase in annual interest costs.
“This could shave RM505mil or 20% from our FY09 earnings forecast of Tenaga,” it said.
Hence, the research house said it believed its earnings forecasts for FY09-11 were still intact for Tenaga. It incorporated the expected slowdown in electricity consumption and additional capacity payments from the Jimah coal-fired power plant.
AmResearch maintained its forecasts for YTL Power and Tanjong plc, which have relatively resilient earnings profile backed by their power purchase agreements. For MMC, it might lower its forecasts given that the scope of the works may be reduced for its RM12.5bil electrified double-track rail project.
On the power renegotiations with the independent power producers (IPPs), it said the obstacles to the power remain unchanged with regard to the adverse impact on the capital market and the country’s sovereign rating.
Any de-regulation to the power sector and electricity tariffs would have to take into account natural gas subsidies, which will still be in place for the next 15 years. Currently, natural gas accounts for 68% of Peninsulas Malaysia’s power generation.
AmResearch said the government’s repeated attempts to restructure the PPA stems from Tenaga’s burden of fixed capacity payments to the IPPs while being subjected to the recent escalation in fuel costs and slowing electricity demand growth in tandem with a likely contraction in GDP expansion.
Moreover, Tenaga’s capacity payments were expected to increase by RM1bil annually with the commissioning of the 1.400MW Jimah coal-fired power plant, which would commence over two phases in January and July 2009. This would cause peninsula Malaysia’s reserve margin to rise from 40.8% currently to 47%.
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