TENAGA: BUY, target price RM9.90

ECM Libra Investment Research believes the subsidy rationalisation programme will not affect Tenaga Nasional Bhd's (5347) earnings for years 2010 and 2011, but instead improve profits from 2012 onwards.

 "This is because tariffs will rise disproportionately higher than gas prices when gas consumption is also limited to 1,250 mmscfd (million standard cubic ft per day). After the programme ends in July 2014, as demand increases disproportionately, more profits will be accreted based on the higher tariffs.

"In addition, coal will be relatively cheaper than gas after January 2011, encouraging a shift in fuel mix to coal. All else being equal, we quantify that FY2015 net profit under the programme will be 42 per cent higher than the current regime," it said.

ECM believes better profits will be used to invest in coal power plants, which may include the expansion of Janamanjung plant by 2,000MW.