TNB (SELL; TP: RM5.10)

Continued Impacted by Higher Fuel Cost

'''' Below Estimates 'Reported 4Q11 core losses RM520m, bringing down FY8/11 core earnings to RM203.6m (vs HLIB's RM548m and consensus's RM685m).

'''' The deviations is mainly coming from higher than expected usage of alternative fuels which cost 5-6x more than natural gas.

'''' Potential power plant breakdown (off- schedule breakdown) as a result of deferred maintenance and the usage of alternative fuels in gas power plant.

'''' Tenaga had proposed to the government to recoup its extra power generation costs of RM2.6bn (Jan-Sept 2011) from Petronas during the gas curtailment period. However, there is no timeline given for decision yet.

'''' Tenaga remained skeptical on gas supply and guided likelihood of ~1,100 mmscfd gas supply. As power demand increases in FY12, 1,100 mmscfd will not be sufficient.

'''' Potential tariff adjustment for coal fuel given its benchmark price is US$85/tonne while current coal price is at US$115/tonne.

'''' No dividend declared

'''' Downgrade to SELL and TP of RM5.10 based on DCF.

''

AirAsia (BUY; TP: RM4.50)

Indonesia AirAsia on Track for IPO

'''' AirAsia to sell 5 of its Airbus A320s to its 48.9% associate, Indonesia AirAsia (IAA) for RM550.8m based on market value. AirAsia is expected to gain RM49.7m.

'''' The transaction is not expected to have material impact on AirAsia's balance sheet and net gearing ratio, only involve transfers from 'Fixed Assets' to 'Due from Associates'.

'''' IAA shall assume a liability of ~RM560m, where IAA will repay AirAsia in installments over 7-8 years. We believe the installments are matched to AirAsia's lease payments to the financial institutions (cash flow matching).

'''' The transaction is expected to reduce AirAsia's overall financial burden in servicing the aircraft lease payments.

'''' The listing of IAA will allow IAA to finance its own aircraft purchases going forward while AirAsia will be able to focus its resources for potential new JVs and business units, as well as dividend payout.

'''' Maintain BUY and TP of RM4.50 based on SOP.

''

Likely to retest 1500 pts this week

'''' Base on the weekly chart, the KLCI is on course to break the 50-w SMA (now at 1512) after a brief consolidation, in anticipation of year-end window dressing activities.'' Immediate resistance is 1488 (61.8% FR), followed by 100-d SMA (now at 1495) and 1500 levels whilst immediate supports are 10-d SMA (1454) and 50-d SMA (1436) pts.

''

E&O: Creeping upwards to RM1.62-1.74 targets''

'''' Improving weekly and daily technical readings are likely to drive E&O to penetrate the important RM1.50 (weekly mid Bollinger band) resistance soon. Should this level be penetrated, it will entice more buying interest to the stock and spur prices higher to next resistance levels of RM1.62 (weekly upper Bollinger band), RM1.74 (50% FR) and a more formidable RM1.78. Major supports are RM1.40 (200-d SAM) and RM1.35 (lower Bollinger band). Cut loss below RM1.33.