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Nikkei Markets

Malaysian utility Tenaga Nasional's net profit more than doubles on year

Expectations of steady performance through 2020 lift shares in weak market

Tenaga Nasional plans to increase its international exposure. It enjoys a near monopoly on electricity distribution in its home market of Malaysia.   © Reuters

KUALA LUMPUR (Nikkei Markets) -- Malaysia's state-controlled electric utility, Tenaga Nasional said Wednesday its third quarter net profit more than doubled from a year earlier thanks to a sharp fall in fuel cost and increase in other operating income.

Net profit for the three months ended Sep. 30 totaled 1.2 billion ringgit ($286.9 million) compared with 501 million ringgit over the same quarter last year, Tenaga said in an exchange filing. Quarterly revenue however fell 3.8% year-on-year to 12.64 billion ringgit from 13.07 billion ringgit.

"The performance of the group is expected to remain stable for financial year 2019," Tenaga said. It expects Malaysia's economic expansion pace to remain steady through 2020.

Coal and gas account for nearly 97% of Tenaga's generation mix. Average coal prices have fallen for the past three quarters, though the company was forced to rely more on natural gas due to coal plant outages.

Average coal price delivered was $81.7 per ton year-to-date, compared with $94.8 a ton over the same nine-month last year. Liquefied natural gas prices, meanwhile, rose to 35.03 ringgit from 30.89 ringgit per million British thermal units.

Shares of Tenaga rose and outperformed the broader market as the latest results exceeded market expectations. Moving forward, the company's earnings are likely to remain steady or improve slightly, analysts said.

"Earnings should be stable... it will be almost the same for next year," said Kenanga Investment Bank Analyst Teh Kian Yeong. "Besides fuel cost, it is important to look at how they manage their power plants and so far, they have managed well."

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

For its first nine months, net profit edged 0.5% higher to 3.88 billion ringgit compared with 3.86 billion ringgit over the same period last year. Revenue meanwhile increased 2.4% to 38.76 billion ringgit against 37.85 billion ringgit recorded in the same nine-month last year.

On its part, the company is also planning to increase its international exposure, said Chief Executive Amir Hamzah Azizan, amid slowing growth in its home market where Tenaga has near monopoly in electricity distribution.

"TNB will leverage on its existing UK assets and market experience to build up a sizable renewable energy portfolio by 2021 through acquisition of both brown and green field projects," he said.

The company currently owns two renewable energy companies in the U.K., and a 30% equity in energy-and-water infrastructure company GAMA Enerji in Turkey.

As per the company's stated goals, its longer-term aim is to grow earnings before interest and tax to 20 billion ringgit by 2025. Under the 10-year program, Tenaga is targeting to build a portfolio of international assets that would account for 20% of its earnings.

Shares of Tenaga Nasional ended 1.2% higher at 13.56 ringgit apiece on Wednesday, while the benchmark FTSE Bursa Malaysia KLCI closed 0.2% lower.

-- Yimie Yong

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