KUALA LUMPUR,. Kenanga Investment Bank Bhd has maintained its “outperform” call on Tenaga Nasional Bhd (TNB) with a revised target price (TP) of RM16.45 from RM17.90 previously, for its undemanding valuation and earning profile.
The research firm said although TNB’s third quarter (Q3) 2018 results was a letdown due to higher fuel costs and interest cost, it would be a temporary hiccup as the higher fuel costs would eventually be passed on to the end-users in the next tariff review in the first half (1H) of 2019.
“Overall, demand growth is still healthy at 2.7 per cent in the nine months period of 2018. Despite earnings cut, the stock still looks attractive,” it said in a note today.
Main risks to its call is the change of the imbalance cost pass-through (ICPT) mechanism, which would change the entire operating cost structure.
Meanwhile, RHB Research Institute Sdn Bhd has also maintained its ‘buy’ call on TNB with a TP of RM16.51 from RM17.00 previously.
It revised earnings for TNB for the financial year 2018-2020 by 6.5 per cent to 14 per cent to account for the higher effective tax rate and partial non-pass-through of higher fuel costs.
It believes that non-pass through of higher fuel cost would be reversed as it approaches an agreement with the Energy Commission.
Downside to its call includes the reversal in the Energy Commission’s direction on the ICPT and larger-than-expected power outages.
At 11.50 am, the stock eased 44 sen to RM14.28 with 3.05 million shares changing hands. — Bernama