Tenaga: Nothing Fishy at All!

Yesterday, Tenaga dropped to a low of RM13.20 on "news" that the Government is planning to cut tariff rate in March as a result of the lower cost of crude oil. For more, go here.

The adjustment in Tenaga's tariff rates should not be a surprise. We know this will come under the Incentive-based Regulation ('IBR'). In brief, IBR involves:

• For 1-year trial period, from Jan 1, 2014 to Dec 31, 2014
• Then the first 3-year regulatory period, from Jan 2015 to Dec 2017

Tariff adjustment consists of:

• Fuel Component that accounts for 82% of the tariff hike
• Fuel Component is made up of 3 sources of fuel: domestic gas, imported LNG & coal
• Fuel Component Cost will be reviewed every six months
• Non-Fuel Component (base tariff hike) that accounts for 18%
• Non-Fuel Cost will be reviewed every three years

Tariff adjustment will be carried out every 6 months, presumably at Jan 1 and Jul 1 of each calender year.  For more, go here.

Based on the above, the news of the tariff rate coming in March is rather unusual. It maybe due to the fact that this adjustment should have been made on Jan 1. Nevertheless, the selldown for Tenaga is rather excessive. After all, Tenaga cannot expect to have the cake and eat it. If the cost of input is lower, then surely the selling price must be adjusted lower.

From the chart below, we can see that Tenaga is at the uptrend line. If this uptrend line is not violated, this is a good entry level to the stock.


 Chart: Tenaga's daily chart as at Feb 12, 2015_10.30am (Source: ShareInvestor.com)

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.