KUALA LUMPUR: Tenaga Nasional Bhd (TNB) has sounded the alarm bell on its earnings.
“The only direction for TNB's profit is south,” said chairman Tan Sri Amar Leo Moggie, giving his frank assessment of the impact of rising fuel costs and the utility's inability to pass that on to consumers.
He said TNB's financial conditions would worsen as fuel costs continued to climb.
Datuk Seri Che Khalib Mohamad Noh (left) and Tan Sri Amar Leo Moggie at the media briefing yesterday.
“If there are no changes in the price structure (electricity tariff), we will face a major difficulty in doing business. That's the reality of our business now,” Moggie told a media briefing after the release of the group's second-quarter earnings yesterday.
On the fuel cost pass-through mechanism, he noted that TNB would present its case to the Government but the decision was beyond the company's control.
Also, he warned that TNB might not meet the key performance indicator targets set by the Government, given the tough operating environment. “Higher coal costs will place pressure on us achieving 5.5% target for return on asset,” he said.
TNB's share price tanked below RM7 amid concerns the Government might want to leave the power tariff unchanged for political reasons and to tame inflation.
The stock, which slid to a low of RM6.80 last month, closed at RM7 yesterday.
The surging fuel cost, due to the rocketing coal prices, has eroded TNB's profit margin. The increment of about RM600mil for capacity payment to independent power producers also affected the group's earnings.
Despite higher electricity sales, the group's net profit plunged 32% to RM1.07bil for the second quarter ended Feb 29, against RM1.57bil a year earlier.
Revenue rose 5.7% to RM6.09bil versus RM5.68bil previously, while pre-tax profit fell 26% to RM1.2bil from RM1.65bil before. Earnings per share (EPS) came in at 24.54 sen against 36.3 sen in the previous corresponding period.
The fall in earnings would be even bigger if a foreign exchange gain of RM280.4mil was excluded.
Consequently, TNB's half-year profit was also lower.
For the six months ended Feb 29, TNB posted net profit of RM2.58bil compared with RM2.82bil in the previous corresponding period, although its revenue was higher at RM12.3bil against RM11.2bil before.
EPS fell to 59.51 sen against 66.15 sen.
Chief executive officer Datuk Seri Che Khalib Mohamad Noh said the average price of coal, which accounted for almost one-third of the group's fuel costs, would increase to US$75 per tonne in the current financial year ending Aug 31 (FY08), from US$55 in FY07.
The average coal price of US$75 a tonne would result in an extra RM1.3bil in generation costs, he said.
According to Khalib, the group's fuel costs had gone up by 18% to 20% in the first half. “The average coal price may rise by 100% next (financial) year,” he added.
Every US$1 increase in the coal price will wipe RM50mil from TNB's profit.
Coal would account for 35% and 40% of TNB's fuel costs in FY09 and FY10 respectively, from about 31% currently, Che Khalib said.
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