Guessing game over new Tenaga chief

Published: 2012/02/04

BASED on the rumour mill, the top candidate to become the new chief of Tenaga Nasional Bhd (TNB) is Datuk Mohd Izzaddin Idris.

Izzaddin, currently managing director of UEM Group Bhd, is tipped to swap places with Datuk Seri Che' Khalib Mohd Noh, the current CEO of TNB.

Izzaddin was previously TNB chief financial officer (CFO) for some time.

The other candidates from the rumour mill are external as well as internal management via promotion and as follows:

* Datuk Ismee Ismail, current CEO of Tabung Haji.

* Datuk Azlin Alias, current special officer to the Prime Minister in the economics section. He was previously an analyst at Nomura Securities.

* Datuk Azman Mohd, current chief operating officer of TNB.

* Datuk Mohd Nazri Shahruddin, TNB's current vice president of generation

* Datuk Rozimi Remeli, TNB's current vice president of transmission.

* Mohd Rafique Merican Mohd Wahiduddin, TNB's current CFO. TNB has a history of promoting from internal management other than external previously, such as Datuk Pian Sukro.

We believe it does not really matter who is the CEO of TNB because ultimately Khazanah Nasional Bhd calls the shots.

We believe that Khazanah keeps an eye on TNB through its director in the investment department, who is in charge of the power division, in particular TNB.

Although TNB may prepare the ground work, ultimately Khazanah makes the case to the Minister of Finance and the Cabinet on the major issues which are currently concerning TNB such as gas subsidies, cost sharing on extra costs of fuel, electricity tariffs and the power purchase agreements (PPAs) with independent power producers (IPPs).

Therefore, the expected change in management in June will be a non-issue as the controlling shareholder remains unchanged.

Therefore, whoever is appointed to replace Che Khalib will represent Khazanah's interests as well as the government's interests in TNB.

TNB's current sub-par performance is not due to the weakness of its current management but merely due to circumstances such as the shortage of gas supply, high cost of fuel and coal, the legacy lopsided PPAs with the IPPs, the strong labour union in TNB and political repercussions of any staff reduction to trimdown operating costs.

Despite the potential change in management in June, we reiterate our "buy" call on TNB, with unchanged fair value of RM6.69 based on the conservative discounted cash flow (DCF) based valuation with a high weighted average cost of capital of 10 per cent.

The actual fair value for TNB based on DCF is at RM7.43 but we ascribed another 10 per cent discount due to the uncertainty on the gas shortage issue.

We believe that the change in the new management will have no impact on its future earnings as Khazanah has the final say on TNB's future direction and plans.

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