UPDATE 2-Malaysia's Tenaga Q1 profit up on demand, forex gain

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By Syed Azman

KUALA LUMPUR Jan 15 (Reuters) - Malaysian power utility Tenaga Nasional (TENA.KL) reported a 22 percent rise in first-quarter net profit on Tuesday, helped by strong demand and currency translation gains.

But the firm warned that rising costs, including payments to independent power producers (IPPs), threatened to squeeze margins, even as demand surpasses expectations.

"We are currently facing two major additional costs -- IPP payments and (the) coal price," Tenaga Chief Executive Che Khalib Mohamad Noh told reporters.

"But we are lucky in a way that demand for electricity (is exceeding) our projection," he said, noting demand in the first quarter increased 8.6 percent against a projection of 6 to 6.5 percent for this fiscal year.

The country's fourth-biggest listed company by market value said net profit in the three months to Nov. 30 rose to 1.51 billion ringgit ($467 million) from 1.25 billion a year earlier.

Tenaga is expected to earn net profit of 3.46 billion ringgit in the year to the end of August 2008, Reuters Estimates show, down from 4.06 billion a year earlier.

Tenaga's payments to IPPs have increased following the commissioning of the 2,100 megawatt Tanjung Bin plant, Malaysia's largest privatised coal-fired power plant.

Power purchases from IPPs make up 45 percent of Tenaga's total costs and fuel 15 percent.

Che Khalib said Tenaga has secured 81 percent of its coal requirement of 14 million tonnes for fiscal 2008 at an average price of $60.3 a tonne.

CURRENCY GAIN

"For this year, we are lucky to be able to secure coal at $60 as the average price of coal now is about $80," he said.

About 26 percent of Malaysia's power is generated by coal-fired plants.

The state-controlled utility, the most indebted publicly traded firm in Malaysia, posted a foreign exchange translation gain of 242.4 million ringgit in the first quarter, mostly on its foreign debts, as the local currency strengthened against major currencies.

Nearly half of Tenaga's debt of 22.8 billion ringgit as at end-November 2007 is denominated in foreign currencies, mostly in dollars and yen, and any appreciation in the ringgit gives it a foreign-exchange translation gain.

Tenaga's financial health has improved since June 2006 when it was permitted to raise electricity prices for the first time in a decade, allowing it to reduce debt and build cash.

Tenaga is the monopoly power distributor and also Malaysia's largest power producer.

But Tenaga shares have been under pressure from government moves to consider cutting gas subsidies. Tenaga, a major beneficiary of these subsidies, has put a proposal to the government for a reform of gas subsidies.

The stock fell 7 percent during the quarter, compared with a 9.7 percent gain in the stock market's main index.

Tenaga trades at about 12 times forecast current-year earnings, cheaper than Asian peers such as India's Reliance Energy RLEN.BO at 63 times and Hongkong Electric (0006.HK) at 13 times.

The stock closed up 0.5 percent at 9.95 ringgit ahead of the results. (Editing by David Holmes)