KUALA LUMPUR, Jan 6 — The 15 per cent electricity tariff hike in Peninsula Malaysia since January 1 this year marked the beginning of a fuel cost-pass-through mechanism executed by Tenaga Nasional Bhd (TNB), the main Malaysian energy provider.

The Energy Commission and MyPower Corp, the regulators set up to drive reforms in the Malaysian electricity supply industry, decided recently that a full fuel cost-pass-through mechanism will be implemented eventually, which means consumers will ultimately have to bear with changes in the fuel cost.

Kenanga Research opined that TNB is at better value as the cost-pass-through mechanism is definitely positive for the powerhouse which will reduce its earnings exposure risk to fuel costs making operational efficiency the key deciding factor to its bottom-line.

“TNB remains our top pick for the sector with a target at RM12.07,” the research house said in a research note today.

Under the plan set by MyPower, prices for piped gas, imported liquefied natural gas (LNG) and coal will be reviewed half-yearly while the base tariff will stay until 2017 for the next review.

“But a six-month review is a tough call in 2014,” said Kenanga Research.

While a review on the tariff structure is expected every six months, Kenanga Research expects the existing tariff to stay at least throughout 2014 given the recent wave of subsidy cuts, resulting in rising living cost and inflationary pressure.

Going forward, Kenanga Research expects electricity demand in the peninsula to support the integrated utility’s top-line while improvements in operational efficiency will determine its bottom-line performance.

“We expect electricity sales in the peninsula to grow at 4.4 per cent in 2014, mainly driven by the commercial and industrial segments,” it added.

For the water utility industry, Kenanga Research maintains its “neutral” call until the restructuring of the Selangor water assets is settled. — Bernama