Why You Hate And Love TENAGA At The Same Time?

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Jan 21 2007
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If Tenaga Nasional Berhad (KLSE: TENAGA, stock-code 5347) is able to pay an average 2.7 month bonus to its 27,000 workers nationwide as reported in Business Times published today, then there is absolutely no justification on the tariff hike which was granted back in May 2006. After the hike, TENAGA was reported ”Will talk to IPPs on capacity payments” due to the fact that most of the 12% tariff increase would actually passed from the hand of TENAGA to Malakoff Berhad (KLSE: MALAKOF, stock-code 2496). The demand from TENAGA for the hike was urgently required to lessen the company’s cash crunch mainly due to the high cost of fuel.

The 2.7 month bonus is the highest ever paid, according to CEO Datuk Seri Che Khalib Mohamad Noh. While the bonus will surely bring joys to the 27,000 employees, the higher electricity bill will no doubt affect the more than 25 million Malaysia populations.

Meanwhile, TENAGA is expected to announce better first-quarter results next week, Jan-25-2007, as well as financial target for 2007. Earlier, Che Khalib had said the tariff hike last year contributed RM400 million to its earnings last year. Analysts expect TENAGA to post a net profit of RM673 million in the first quarter, according to estimates compiled by Bloomberg.

Besides, it would get a boost from lower fuel prices, especially coal, which makes up 44 per cent of its fuel cost in 2006. Coal prices have been on the downtrend since hitting the peak in March 2006 and are currently trading in the lower US$40 (RM140) per tonne region. It is estimated that for every US$5 (RM17.5) per tonne drop in prices, TENAGA’s earnings per share in 2007 would rise by 3 per cent.

All 21 analysts that track TENAGA’s shares recommend that investors buy them, according to Bloomberg data. So, while socially TENAGA can be accused of squeezing money filled with sweats from man-on-street, business-wise the stock has and will performs in tandem with higher profit from higher tariff and lower fuel costs.

# TIP: Invest this stock should there be any immediate pull-back before the earning announcement to make some decent money.

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