Tenaga Nasional Bhd BUY

Tenaga Nasional Bhd BUY



Price target RM7.40



Share price at 2 Jan RM6.25



Investment summary
Last week, TNB confirmed that it is in preliminary talks with Malakoff to buy back its remaining 40% stake in IPP Kapar plant. The deal is neutral, and we maintain our BUY rating for TNB: (1) We think brokers could start to aggressively upgrade EPS estimates by +20% to factor-in current low coal prices, once it becomes evident that low coal prices are here to stay. (2) Falling coal prices could accelerate the government’s imposition of an automated tariff mechanism, to allow consumers to potentially benefit from lower energy prices. This could once and for all resolve TNB’s earnings volatility relative to commodity prices.



Short-coal play

We think TNB is worth a trade, in view of low foreign shareholding and the recent sharp and permanent decline in coal prices, which has largely escaped broker attentions.