Tenaga Rises as Cut in Gas Costs Offsets Power Price

By Chan Tien Hin

Feb. 12 (Bloomberg) -- Tenaga Nasional Bhd., Malaysia’s state-controlled power utility, rose the most in more than a month after analysts upgraded the stock, saying a cut in gas costs will more than offset a drop in electricity prices.

Shares of the Kuala Lumpur-based company gained 20 sen, or 3.5 percent, to 6 ringgit as of 10:23 a.m. local time, heading for the largest gain since Jan. 9 and outpacing the benchmark Composite Index’s 0.3 percent advance. The stock earlier climbed as much as 6 percent.

Tenaga was raised to “neutral” from “underweight” at JPMorgan Chase & Co. The stock’s rating was boosted to “trading buy” from “hold” by Maybank Investment Bank Bhd., which said the power price cuts are “net positive” for earnings in the year ending Aug. 31.

The state utility will cut prices for the first time in more than a decade as part of the Malaysian government’s plan to ease costs for consumers and businesses amid an economic slowdown. The Malaysian economy may contract 0.7 percent this year, according to Maybank Investment Bank Bhd., a unit of the nation’s biggest bank. That compares with the government’s forecast for 3.5 percent growth.

We were “pleasantly surprised that the government has allowed Tenaga to keep some of the cost-savings from the lower gas price,” RHB Research Institute Sdn. said in a report today. This will help Tenaga to partially cover the higher coal cost.”

Coal Cost

The utility said yesterday it will reduce power prices for industrial users by an average 5 percent, for commercial users by 2.7 percent and for households by 2.5 percent, the company said. The price of natural gas that Malaysia sells to power producers was cut by 25 percent.

The changes in power charges also took into account an increase in coal prices to $85 a metric ton from $75 a ton, Tenaga said yesterday.

The “overhang or concerns from the impact of the tariff cuts is over,” Edmond Lee, an analyst at JPMorgan, said in a report today. The impact is “slightly earnings accretive,” he said.

A decline of 3.7 percent in electricity prices would require a 20 percent reduction in gas prices to be “earnings-neutral,” Lee said.

The introduction of a formal “fuel pass-through formula is still key for a sustainable re-rating,” he said.

Tenaga last month posted a second straight quarterly loss as fuel costs climbed and a weaker currency increased foreign debt payments.

To contact the reporter on this story: Chan Tien Hin in Kuala Lumpur at thchan@bloomberg.net.