Tenaga Nasional: Tariff surcharge in 1H2019? Buy

Maintain BUY on Tenaga Nasional (TNB) with an unchanged DCF-based fair value of RM17.25/share (terminal growth rate: 1.5%, WACC: 7.9%). We like TNB for its earnings stability and attractive dividend yield of 5.8% for FY19F.

The key takeaways from our meeting with TNB are: 1) TNB is unable to assess the cost of implementing the pilot project for the National Connectivity Plan (NCP); 2) As fuel costs have gone up in 2H2018, we believe that the government would approve a hike in the electricity tariff in 1H2019 via a surcharge (2H2018: surcharge of 1.35 sen/kWH amounting to RM698.2mil in total); 3) TNB has not faced any pressure from the regulators to segregate the regulated (transmission and distribution) and nonregulated (generation) assets yet; 4) TNB is evaluating the potential sale of its 235MW power plant in Pakistan and at the same time considering increasing its investment in Gama Enerji in Turkey from 30% to 80.5%.

Others:

Eonmetall: Secures BOOT deal with Felda for six PFOE plants Buy

UMW Holdings: Modest auto prospects to drive FY19 growth Hold

RETAIL RESEARCH

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Source: AmInvest Research - 5 Oct 2018