MIDF sees yen boost for TNB

PETALING JAYA: Tenaga Nasional Bhd’s (TNB) business fundamentals are expected to be boosted by the yen’s weakness which could fall on average of about 10.2% against the US dollar this year, according to MIDF Research.

Its analyst, Zulkifli Hamzah Amelia Arshad, said 23% of TNB’s RM23.1bil loans at end-Aug 12 was yen-denominated.

“Every 10% gain in (the) yen is estimated to raise TNB’s net earnings by RM25mil, ceteris paribus. This bodes well for TNB’s net earnings as it will incur lower interest cost and may result in (a) translation gain,” he said in a report to clients yesterday.

MIDF also noted the yen has depreciated by about 12% against the US dollar, since the country’s general election in late November last year. “As (the) ringgit has stayed firm against the greenback, this translates to an 11.8% appreciation against the yen at the same time.

“We expect the US$/yen exchange rate to average US$/88 yen in 2013, translating into a -10.2% depreciation in the yen (compared with that in 2012),” Zulkifli wrote.

He added MIDF Research expected the ringgit to gain 1.2%, on average against the greenback. “This implies a 12.3% cross-rate appreciation of the ringgit against the yen,” he said.

MIDF noted other than the yen boost, other positives for TNB was the fuel compensation arrangement that has been extended and the lower coal prices with the relatively strong power demand of 4.5%.

The research house reiterated its “buy” call on TNB with a target price of RM8.00 (based on weighted average cost of capital at 8%).

Meanwhile, CIMB in a separate report said it remains long-term overweight on the Malaysian power sector which offers secured cash flows, backed by long-term contracts and well-supported by the Malaysian Government.

“Malaysia’s economy is primed to continue growing and mega infrastructure and transport projects need to be supported by a strong electricity supply industry.

“We think share prices can continue to outperform the broader market in 2013 as investors focus more on earnings growth instead of cash payments,” analyst Yeoh Yung-Juen wrote in the report.

CIMB has an “outperform” call on Cypark Resources Bhd (target price: RM2.82), Gas Malaysia Bhd (TP: RM3.07) and YTL Power International Bhd (TP: RM2.65) while it has a “neutral” rating on Petronas Gas Bhd (TP: RM20.60) and a “trading buy” on TNB (TP: RM8.55).