• Tenaga appoints a new President/CEO, Amir Hamzah, which takes effect 2 Apr 2019. His track record portends to possible valueunlocking exercise taking place for Tenaga, in our view.

• The TM-Axiata breakup model is an option or the ‘spin off’ model a la Petronas/MMC Corp which splits Tenaga into 3 listed entities: a) regulated business, b) Generation & Maintenance and c) foreign ventures.

• We roughly estimate that this could enhance value by over 40% after applying 19x/16x PE respectively to income from regulated assets and the Generation & Maintenance businesses (Table 1).

• Market is likely nervous with the abrupt change. Still, we believe fundamentals are intact. Upgrade to BUY with unchanged RM14.30 DCF-derived TP. Accumulate on dips.

The rumours were true!

A local media outlet, New Straits Times, reported on 14 Mar citing unnamed sources of a possible change in Tenaga’s chief. The rumours have been confirmed with the appointment of Amir Hamzah as the new President/CEO effective 2 Apr 2019. Datuk Seri Ir. Azman Mohd’s would end his tenure on 31 Mar 2019.

A legacy unrivalled

Since Azman assumed the President/CEO role on 1 Jul 2012, Tenaga has posted several key achievements such as: i) smooth adoption of the IBR Framework, ii) new dividend policy, making it the most generous cashdividend stock in KLCI, iii) record earnings in FY17 (FYE Aug), and iv) strategic approach to overseas ventures, reflecting past lessons learnt.

A worthy successor

Amir’s CV boasts strong track record of company reforms, M&As and value-unlocking exercises (Table 3). We were particularly impressed with his c.10-year stint leading MISC/AET Tankers from Jan 2000 to Jun 2010.

Is the whole greater than the sum of parts?

We believe Tenaga is ripe for value-unlocking. We see the reform taking on 2 forms: i) the TM-Axiata breakup model as Tenaga shares similar legacy to TM while facing the need to pursue growth overseas, or ii) the ‘spin off’ model a la Petronas and/or MMC Corp, splitting Tenaga into 3 listed entities: a) regulated business, c) Generation & Maintenance (G&M) and c) foreign ventures. Our rough estimate for the regulated business and G&M enhances its market value by over 40% (Table 1).

Upgrade to BUY (from HOLD) with a TP of RM14.30

Upgrade to BUY with unchanged DCF-derived TP of RM14.30. With the abrupt change, we see inherent downside risk to share price. However, its solid fundamentals imply a compelling investment case as dividend yields are decent at 4-5%. Accumulate on dips.

Source: BIMB Securities Research - 28 Mar 2019