KUALA LUMPUR: CIMB Equities Research is turning bullish on the local power sector as power subsidies could be the next target after the recent price hikes for fuel and sugar.

The research house said on Tuesday, July 27 that it thinks that there are compelling economic and political reasons for a gas-led tariff hike in 2HCY10.

?As Tenaga stands to gain most from such reforms, we upgrade the stock from neutral to Trading Buy, which is supported by its near-trough valuations, possibly stronger demand and a weaker coal price outlook,? it said.

The newly-revealed national energy policy and focus on subsidies could also help push through other reforms such as PPA renegotiations.

CIMB Research said in line with Tenaga's upgrade, it lifted its sector call from neutral to OVERWEIGHT.

Although both independent power producers remain Outperforms, ?our near-term top pick is now Tenaga as the short-term positive newsflow should help to re-rate this key heavyweight laggard?.