MIMB Investment Bank reckons that Tenaga will benefit from a stronger ringgit in view of its sizeable US dollar borrowings
MIMB Investment Bank Bhd has upgraded its price target on Tenaga Nasional Bhd (5347) to RM9.60 from RM8.75, but kept its "neutral" rating.
The local research firm said this is in anticipation that Tenaga will benefit from a stronger ringgit in view of its sizeable US dollar borrowings.
"We reckon that a strong ringgit should boost Tenaga's bottom-line (going forward), but not its cash-flow. As such, this will not change its core fundamental," MIMB said in a report.
MIMB said its new price target is based on unchanged target price to earnings ratio of 12.5 times.
Currently, US dollar-dominated debts account for 22 per cent of Tenaga's total borrowings.
MIMB said assuming no changes to Japanese yen against the ringgit, Tenaga would post RM230 million in forex translation gains in the fourth quarter of 2010 as the ringgit has strengthened 4.9 per cent against the greenback over the quarter.
Year to date, Tenaga had registered RM668.1 million in forex translation gains, including yen in the past six months.
MIMB said a softening US dollar also means potential lower coal cost in ringgit terms.
In the third quarter of 2010, Tenaga's operating costs were hit by higher coal price as it posted average coal cost of US$91.60 (RM285.79) a tonne versus US$82.30 (RM256.77) a tonne in the second quarter.
Spot coal prices were hovering between US$70 (RM218) a tonne and US$80 (RM249) a tonne in the June-August 2010 period, which was the same as in the March-May 2010 period.
Hence, the coal cost in the fourth quarter of 2010 in ringgit terms could be lower in view of the weakening in US dollar against the ringgit, said MIMB.
The local research firm said this is in anticipation that Tenaga will benefit from a stronger ringgit in view of its sizeable US dollar borrowings.
"We reckon that a strong ringgit should boost Tenaga's bottom-line (going forward), but not its cash-flow. As such, this will not change its core fundamental," MIMB said in a report.
MIMB said its new price target is based on unchanged target price to earnings ratio of 12.5 times.
Currently, US dollar-dominated debts account for 22 per cent of Tenaga's total borrowings.
MIMB said assuming no changes to Japanese yen against the ringgit, Tenaga would post RM230 million in forex translation gains in the fourth quarter of 2010 as the ringgit has strengthened 4.9 per cent against the greenback over the quarter.
Year to date, Tenaga had registered RM668.1 million in forex translation gains, including yen in the past six months.
MIMB said a softening US dollar also means potential lower coal cost in ringgit terms.
In the third quarter of 2010, Tenaga's operating costs were hit by higher coal price as it posted average coal cost of US$91.60 (RM285.79) a tonne versus US$82.30 (RM256.77) a tonne in the second quarter.
Spot coal prices were hovering between US$70 (RM218) a tonne and US$80 (RM249) a tonne in the June-August 2010 period, which was the same as in the March-May 2010 period.
Hence, the coal cost in the fourth quarter of 2010 in ringgit terms could be lower in view of the weakening in US dollar against the ringgit, said MIMB.
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