Tenaga has a very good 4Q2006

Recent Financial Results

Tenaga has announced its results for FYE2006. The net profit for the Group improved from RM1,280.0 million to RM2,126.9 million, an increase of RM846.9 million. This was achieved on a revenue of RM20,384.2 million which was RM1,406.7 million or 7.4% higher than the corresponding period in the last financial year. The better performance was attributable to higher electricity sales and the strengthening of Ringgit.

For 4Q2006, Tenaga recorded a net profit of RM403.6 million on a turnover of RM5,620.3 million. When compared to the corresponding fourth quarter FY2005, net profit shows a gain of RM332.8 million [or 82.5%] while turnover increased by RM664.2 million [or 13.4%]. When compared to the preceding quarter, net profit was higher by RM341.0 million [or 86.2%] while turnover was higher by RM599.2 million [or 11.9%].

The higher electricity sales- the main reason for the outsize improvement in net profit & turnover- is mainly due to tariff review that was approved by the Government with effect from 1 June 2006. See the table below for Tenaga's last 8 quarterly result.







Valuation

Based on the EPS of 18.07 sen for 4Q2006, Tenaga's full-year EPS may amount to 72.28 sen. At yesterday's closing price of RM9.85, Tenaga is now trading at a PE of 13.6 times. At this multiple, Tenaga is very attractive as it is a defensive stock & one of the prime blue chip in Malaysia. In better time, I believe that Tenaga can command a PE of 18 times.

Technical Outlook

From the weekly chart, we can see that Tenaga is in an upward channel. The lower & upper channels are RM9.50 & RM10.40, respectively. A break above the upper channel would signal the beginning of an accelerated move for Tenaga. See Chart 1 below.

















Chart 1: Tenaga's weekly chart as at Oct 12


















Chart 2: Tenaga's monthly chart as at Oct 12

From the monthly chart above, we can see that Tenaga needs to break above its immediate horizontal resistance of RM10 in order to go higher. The next resistance is at RM12.

Conclusion

From this, you may agree that Tenaga is an attractive long-term investment.

Note: You may opt to trade on Tenaga instead of investing long-term. In which case, you can consider any one of the existing 2 call warrants [i.e. Tenaga-CA or Tenaga-CB]. The new call warrant [Tenaga-CC], which has started trading today, has a much higher premium than the existing 2 call warrants. Nonetheless, I believe that Tenaga is a stock that is more suitable for long-term investment rather than short-term trading.