OSK rated Tenaga Nasional a 'buy' with a lower fair value of RM9.90.

'TNB's results were below our estimates, mainly due to its effective tariffs not matching our expectations as well as lower non-electricity revenue and higher 'other costs',' OSK said.

OSK noted that while year-to-date core net profits rose 22 per cent on higher electricity demand, quarter-on-quarter profits fell by 37 per cent although the higher coal costs were within expectations.

'Going forward, TNB will have to continue using more coal for generation as gas is diverted for non-power use. As such, we adjust our generation mix to reflect more coal usage, tweak down our effective tariff rates and revise up our 'other costs'.

'This effectively reduces our core net profit forecast by 17 per cent for FY10 and 15 per cent for FY11, as well as our DCF based fair value from RM10.15 to RM9.90, which is equivalent to 13.5x FY11 PER,' OSK said.