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Thursday, July 03, 2014

Tenaga: Waiting for Bullish Breakout!

Tenaga has been in the news lately on possible approval to get a tariff hike. In fact, Tenaga is overdue for a tariff adjustment according to the Incentive-Based Regulation (IBR) which started on 1 January. This regulation provides for a Fuel Cost Pass-Through (FCPT) to be implemented by way of a 6-monthly Fuel Component Cost review.

The Fuel Components are Domestic gas (subsidized input from Petronas at a rising scale), LNG gas (at market price) and Coal (at market price). From the charts below, we can see that the price of Natural Gas & Thermal Coal has risen in the past 6 months. As such, we can expect a tariff increase for Tenaga to compensate it for the increased fuel cost.


Chart 1: Thermal Coal price chart (Source: infomine.com)


Chart 2: Natural Gas price chart (Source: nasdaq.com)

The share price of Tenaga has been moving sideways because the market is nervously awaiting the first test of whether the Government will stick to the IBR by implementing the FCPT. 3 days into the month of July, we have yet to receive any news of a revision in Tenaga tariff rate. If the announcement is made now, one big uncertainty - which  has been a drag on the share price for Tenaga - will be removed.

From the chart below, we can see that Tenaga is pressing against its horizontal line at RM12.40. A convincingly upside breakout of the horizontal line (as well as the psychological RM12.50 mark) would signal the continuation of the uptrend for the stock.


Chart 3: Tenaga's weekly chart as at July 2, 2014 (Source: Tradesignum)

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Tenaga.

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