- We reiterate our BUY call on Tenaga Nasional Bhd with an unchanged DCF-derived fair value of RM16.40/share, which implies an FY15F PE of 14.5x.

- In a filing to Bursa Malaysia yesterday, Tenaga said that it has been served two originating summonses from the dissenting shareholders of Integrax Bhd, namely Chan Kok Keong as well as Amin bin Halim Rasip and Nor'aini binti Hashim, in relation to Tenaga’s takeover of the latter, which was completed in April 2015.

- To recap, Tenaga had on 9 Jan 2015 made a conditional take-over offer to acquire all the remaining shares it does not own in Integrax by way of cash at an offer price of RM2.75/share. Tenaga then raised its offer price to RM3.25/share on 25 February 2015 as some major shareholders – including its third largest shareholder Perak Corp – had argued that the initial offer price was too low.

- Note that Amin, who was also Integrax’s deputy chairman, had held 21.37% of Integrax and was its second largest shareholder at the time of the takeover. He was previously reported as saying that he will only consider selling his stake if the offer price is RM5.00/share.

- Among other reliefs, the plaintiffs are claiming that the offer document dated 30 January 2015 is erroneous and void. According to The Edge Financial Daily, some material information was not disclosed to the shareholders in the offer document.

- This included a new agreement for the usage of the port operator’s terminal for the import of coal by Tenaga, which would have enhanced Integrax’s earnings. Based on press reports, we gather that Integrax had entered into its third Jetty Terminal Usage Agreement 3 (JTUA 3) with Tenaga for its 1,000MW brownfield coal-fired power plant, Manjung 5, in April 2015.

- We are leaving our FY15F-FY17F earnings estimates for now pending further development of the case. We understand that aside from the management and legal expenses, the suits should not have a material impact on Tenaga’s earnings.

- Tenaga’s valuations remain undemanding. The stock is currently trading at FY15F-FY16F PEs of 11x, below its 3-year average of 15x. Dividend yields are also decent, at 2.7%.

Source: AmeSecurities Research - 9 Jul 2015