PETALING JAYA (Oct 31, 2011): Shares in Tenaga Nasional Bhd (TNB) reversed early losses to close higher today, on optimism that the worst is over for the utility firm, although uncertainties remain on whether a scheduled tariff adjustment in December will be implemented on time and when normal gas supply will resume.

"The worst is over for TNB as a higher gas allocation in financial year ending Aug 31, 2012 (FY12) will boost its earnings,'' CIMB Research said.

But the brokerage cautioned that this is offset by the lack of a complete fuel cost pass-through mechanism, which means the company will have to continue to shoulder the burden of costlier fuels.

TNB's share price dipped to an intra-day low of RM5.70 in early trade today against Friday's close of RM5.86 after the utility firm reported a second consecutive quarterly loss for the three months ended Aug 31.

It closed 12 sen higher at RM5.98.

Despite the six-month loss of RM893 million, TNB remained in the black for the full year with a net profit of RM500 million.

"We estimate a tripling of FY12 net profit,'' CIMB Research said.

The bullish estimate has factored in an assumption in the recovery in volume of gas supplied by Petronas to the power sector and another tariff hike that may happen as soon as December.

More gas will cut down the usage of more expensive oil and distillate to keep its power plants running, while a tariff adjustment, when approved by the government, will enable TNB to offset the increase in fuel prices.

"We see the outlook for TNB remaining murky for now as the company continues to bear with the lack a fuel cost pass-through formula as well as uncertainties in gas supply,'' OSK Research head Chris Eng said in a note today.

"While some of these issues should clear up after the impending general election, we cannot firmly predict when exactly this would happen,'' he added.

A proposal to raise the coal pass-through price from US$85 a tonne to US$105-110 was received by the government, and analysts said this will increase overall electricity tariffs by 4% and TNB's annual revenue by RM1.4 billion.

TNB is also hoping to get some compensation on additional fuel bill that amounted to RM2.1 billion in FY11 that it had to incur because of a shortfall in gas supplied by Petronas.

The company indicated it expects to receive an average natural gas allocation of 1,100-1,150 million metric British thermal units (mmbtu) a day in FY12 compared with 950 mmbtu a day during the second half of FY11.

A regasification terminal in Malacca is expected to be ready by July next year, and this will help Petronas meet its commitment to supply 1,350 mmbtu a day of gas to the power sector in 2012.

"As long as this supply is not secured, the burning of distillate and oil will have to continue as the current gas supply is insufficient especially in first half of FY12 due to maintenance work by Petronas,'' ECM Libra Research said.