Wednesday, September 14, 2011

Shall we bet on Tenaga?

First let's look at the chart. Well it has not even reached extreme fear of 2009 yet which was at the low end of RM 4 and still very far from 1998.

Then let me take you back all the way back to 1997/1998.

How not to dump share to RM 1++ when you see Tenaga lost almost RM 2 billion plus? If I'm not mistaken that they got hit due to depreciation of Ringgit that had a huge impact on interest expense which dominated in foreign borrowings. For some reasons they were able to get themselves out of the trouble after that.

This time round, the gas shortage is the culprit. It is going to hit them hard, very hard. In quarter 3 ended May 31, they lost almost half a billion. Their chief said, they have spent this much on alternative to gas:

TNB president and chief executive officer Datuk Seri Che Khalib Mohamad Noh said the company had spent close to RM2.1 billion from January 2010 to August this year to substitute gas with distillates (diesel) as a temporary measure.

Read more: TNB: Gas shortage may force us to borrow

2.1 billion?? the number seems to be very big. He expects there will be an additional spending of 900 million from September - December, wow that is almost 225 million/month. He also expect this will last until next July, which mean another 1.5-1.6 billion expenses on distillates? If what he said is true, Tenaga can report as much as 2 billion losses over next 12 months? I am not really sure investors get the message and able to swallow this huge loss.

I know analysts are still reluctant to cut their rating citing the valuation is cheap.

Agree if you have a long term view and very long term view. I also know their profitability can recover but I want to see how investors react when they see Q4 '11 results. Let say they can make 2 - 3 billion profit per year. Their annual depreciation is about 4 billion and their capex is about 3 - 4 billion. So they can generate Free Cash Flow about 2 - 3 billion per year. They should be able to get themselves out of this mess in 1 to 1.5 year.

BUT..........I doubt many have that long term view. So.............

I will want to wait for a while and see whether 2009 low will be tested before place some chips.

1 comment:

lcchong said...

Very good observation on negative correlation between KLCI and RM