I have advised some investors to buy TNB during the economic crisis, but some of them are skeptical. Why they skeptical? Because TNB has recorded lower profit last year as well as paper losses of currency which almost RM1 billion.
I agreed with that argument and it has brought the price of TNB dropped to RM5.60 in Feb 2009. But did they check from the financial report that, in FY2008 TNB has made net profit as much as RM3.0b. Yes it was lower that previous FY2007 where their net profit was RM4.1b….but didn’t they realize that last net profit still higher than FY2006, FY2005 and FY2004 which recorded RM2.1b, RM1.3b and RM0.8b respectively.
I strongly believe that TNB is good for buy during this situation with the following reason;
Please bear in mind that TNB is a monopoly company in national power industry. Every sector are depend on TNB. Will government let the TNB down? Just imagine what happen to our economic if TNB is not around?
Monopoly company is one of the Warren Buffet’s favourite.
We cannot deny that last year (FY2008) TNB has reported paper losses as much as RM900M due to drop in our currency, but this is not the first time TNB recorded such a paper losses.
During the financial crisis in 1997/98, it has reported paper currency losses about RM1 billion but the price of TNB has increased from RM5.70 in April 1999 to RM11.80 in May 2000, it took about one year.
In January 2007 it has recorded highest i.e RM12.60 before dropped to RM5.60 in February 2009.
The paper losses will not last longer as this year TNB will seriously tackle the foreign debt by repurchasing and cancelling a portion of its USD denominated bonds. It has plans to repurchase 2011 & 2015 notes, 2025 debentures and 2096 debentures amounting to a total of USD300m over the next six months.
Even last year it has managed to reduced its debt from RM24 bil. to RM22.7bil.
Slower electricity demand from the steel, cement, and building materials factories has made profit fell last year, but 2009 stimulus budget (RM67b) which focus on construction and infrastructure will boost the demand again.
5 development corridors will attract multi billion ringgit investment in tandem with better economic prospect in 2010 will increase the demand of electricity of 6% - 7% in FY09 - FY10.
As well as higher demand, TNB will also enjoy lower coal price where the average price will be US$120 per tonne in FY09 - FY10 where as peak price was US$173 per tonne in FY08. The completion of Bakun project will contribute long term benefit to TNB in form of cost saving and usage of coals will be reduced.
TNB is the cyclical stock. Cyclical stock is a stock which the price fall when the economic fall and increase when the economic increase. As we have seen TNB price fell last year in tandem with the financial sector collapse in US, I believe that TNB will up again when domestic and global economic recovered.
In other word, TNB is recommended BUY for price appreciation during economic recovery.
Between November to December 2008, EPF has accumulated 8.3 mil. TNB shares.
Early of 2009, I advised to buy TNB when the price below RM6.00 and early of February the price was below RM6.00 for 8 days. In March it has closed below RM6.00 twice.
As of 14 April the price was RM6.60. Still can buy?
My advise is, still can buy if the price below RM6.50. Buy in stage is better and average down when the price drop further.
According to OSK Research, the fair value of TNB is RM8.40
- Sabri Jalil
