• HLIB Institutional Research has a BUY rating on Tenaga with target price of RM17.00, or 59% upside. We believe values re-emerge after Tenaga’s share prices plunged 36% from 52-week high to close at RM10.86 yesterday, supported by strong earnings growth prospects (FY14-17 CAGR of 13%), undemanding valuations of 8.3x and 8x for FY16-17 P/E (vs. 5-year average 12.9x) and decent yield of 3.5%-3.7% for FY16-17. We believe such valuations have provided a sufficient margin of safety and cushion further sharp share price decline, supported by deeply oversold daily and weekly indicators
• Deeply oversold. From 6M high of RM14.90 on 17 Apr, Tenaga’s s hare prices tumbled 28.6% to a low of RM10.64 on 12 Aug before closing at RM10.86 yesterday (wiped off RM22.8bn market cap), in tandem with the broader market selldown amid external and internal uncertainties , concerns over depreciating RM against US$ coupled with concerns that it will acquire 1MDB’s power ass ets at full valuation of RM18bn (including RM6bn inherited debt).

• Given its extremely oversold position, marginal exposures of 7% to US$ debt and the massive RM22.8bn plunge in Tenaga’s market cap (1.27x of R M18bn 1MDB’s power ass ets ), Tenaga is likely to find an interim base near RM10.40 (the RM9.66-10.40 gap on 3 Dec 13) and RM10.64 zones. A decisive breakout above RM11.15 (38.2% FR) bodes well for the stock to advance higher to more formidable resistances at RM11.86 (20-d SMA) and our long term objective of RM12.10 (30-d SMA). Cut loss at RM10.30.

Source: Hong Leong Investment Bank Research - 14 Aug 2015