CIMB Research upgrades Tenaga to Outperform

KUALA LUMPUR: CIMB Equities Research upgrades Tenaga Nasional to Outperform from Trading Buy as Barisan Nasional's win ensures continuity of reforms.
"We
change our valuation method from 1.37 times price-to-book value (15%
below the 10-year average) to 14.2 times price-to-earnings (P/E), in
line with the KLCI's three-year rolling average," it said on Tuesday.
CIMB
Research said investors should focus on earnings and not cost
volatility alone, which lifted its target price to RM10.20 from RM8.58.
It pointed out Tenaga was its new top pick and would be catalysed by tariff reforms.
To
recap, Barisan Nasional (BN) won 133 of 222 parliamentary seats in
Malaysia's 13th general elections, retaining power of the federal
government with a decent majority.
"BN's majority gives the
coalition a fresh mandate for five more years, reducing the probability
that punitive policies will be implemented in the power sector.
"We
believe Tenaga is the primary beneficiary of this news as it owns 50%
of Peninsular Malaysia's generation capacity and fully controls
transmission and distribution," it said.
CIMB Research said a
continuation of BN at the federal level gave it comfort that
electricity tariff reforms would accelerate as natural gas subsidies
were not sustainable.
This includes the implementation of a stabilisation fund and/or the incentive-based regulation (IBR) framework.
The
research house said the former would ensure Tenaga's costs are fully
accounted for while the IBR would set clear rules for changes in
electricity tariffs.