KUALA LUMPUR (Jan 23): Hong Leong IB Research has maintained its maintained its “Buy” rating on Tenaga Nasional Bhd with a higher target price of RM17.50 (from RM16) and said the utility giant reported strong 1Q15 earnings at RM2.3 billion, above both HLIB (41.7% of FY15) and market (39.0% of FY15) expectations, due to lower than expected operational cost from improved coal generation mix and lower coal cost.

In a note Friday, the research house said Tenaga’s 1Q15 earnings include fuel-cost recovery of RM200 million, a complete turnaround compared to FY14’s fuel-cost under-recovery of RM600 million.

It said Tenaga had not recognised the writeback of RM600 million pending regulatory review.

“Coal power generation is expected to increase further when Tenaga’s Manjung 4 coal-fired power plant commence operation by April 2015

“We expect government to increase gas price in July review, to offset the current low coal price environment, while maintaining the current electricity tariff rate.

“Remained confident of Tenaga prospects and maintain Buy with higher target price RM17.50 (from RM16.00) based on DCFE,” it said.