Tenaga- hope of price hike dashed

You would have probably guessed by now that Tenaga didn't get a tariff adjustment as speculated earlier. This comes from reading between the lines of yesterday announcement by the Government that there will be no fuel or gas price hike for now. The result of that announcement was an immediate correction in Tenaga share price, which dropped back to the downtrend line. The stock is likely to drop further and if it breaks below the RM5.90-6.00 support, we may see it dropping to the horizontal line of RM5.00. Except for extreme market condition, Tenaga tends to trade within the range of RM5.00 & RM8.00. See Chart 1 & 2 below.


Chart 1: Tenaga's daily chart as at May 25, 2011 (Source: Quickcharts)



Chart 2: Tenaga's monthly chart as at May 3, 2011_plotted on log scale (Source: Quickcharts)

How badly does Tenaga need a price hike? There is a story that the State Grid Corp of China said that it would shutdown some generators- reducing output by 40 gigawatts- because it is struggling with coal price increases of 75% while electricity rates have only risen by 15% since 2007 (go here). Tenaga may encounter a similar predicament in Malaysia even though a sizable portion of its power generation is powered by natural gas, which is subsidized by the Government.

Based on the above, Tenaga's trading BUY (as implied by my earlier post) is cancelled. It is best to avoid this stock for now. However, it can be a good trading stock or medium-term investment if the price were to drop to the RM5.00 mark.