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Asia300

Rising coal prices likely to weigh on Tenaga Nasional

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KUALA LUMPUR (NewsRise) - Malaysian power utility Tenaga Nasional, which reported a 12% decline in fiscal first quarter net profit, may face further cost pressure in the months ahead due to rising coal prices, analysts said.

However, the higher input charges could prompt Tenaga to pass incremental cost to the consumers by raising electricity tariff, analysts added.

Under Malaysia's co-called Imbalance Cost Pass-Through mechanism, Tenaga Nasional could reflect changes in fuel and other power generation-related cost every six months.

"We are in the view that government will follow through with the ICPT mechanism, and increase electricity tariff if needed," said Affin Investment Bank's analyst Ng Chi Hoong. The full impact of higher coal prices will likely be felt in the second quarter, he added.

Coal, mostly purchased from Indonesia, Australia, South Africa and Russia, makes up about half of Tenaga Nasional's inputs for power generation. Natural gas accounts for about 47% in the raw-material mix, and hydel power makes up the remainder.

Prices of coal rose nearly 7% year-on-year to $63 a ton between September and November. However, Tenaga Nasional's average fuel cost had only risen 5% during the same three months due to a 70% decline in natural gas price. A weaker ringgit also raised Tenaga Nasional's cost of imports.

Net profit for three months ended Nov. 30 totalled 1.74 billion ringgit ($392 million), largely within market expectations, compared to 1.98 billion ringgit a year earlier, Tenaga Nasional informed the exchange. Quarterly revenue meanwhile rose 5.0% year-on-year to 11.24 billion ringgit from 10.68 billion ringgit.

Tenaga Nasional also cautioned of "potential widening of global imbalances coupled with volatility in exchange rates" that pose risks in the current fiscal year.

Since November-end, coal prices have risen to around $78 per ton.

"This is not alarming as the cost increase will be passed through to consumers eventually, under the half-yearly tariff review," said Kenanga Investment Bank's analyst Teh Kian Yeong.

The company currently generates up to 12,013 megawatt of electricity from its domestic power plants and has another 3,201 megawatt capacity to be commissioned by 2019.

Tenaga Nasional has begun acquiring foreign assets that the company hopes would account for 20% of its earnings by 2025. Most recently, the company announced purchase of a 50% stake in U.K. based solar company Vortex Solar Investments for 86 million British pounds.

Shares of Tenaga Nasional fell 0.6% to 13.80 ringgit on Wednesday while the benchmark FTSE Bursa Malaysia KLCI ended 0.2% higher.

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