Last week, the cabinet has released a 10-year Malaysia Electricity Supply Industry 2.0 (MESI 2.0) masterplan to reform the domestic power industry by introducing liberalisation across the industry from fuel sources, generation to transmission and distribution and retail in Peninsular Malaysia. Due to worries over potential competitions and earnings risks, utilities related stocks fell 4.5- 15.2% from 3M high. Overall, we believe the selldown could be overdone as we do not anticipate immediate material earnings impact, given the gradual implementation only in 2021. YTLPOWR remains HLIB sector top pick for its cheap valuations and attractive DY whilst technically attractive trading plays are JAKS (contributions from Vietnam power plant) and TADMAX (supported by news flow from the gas-fired power plant in Pulau Indah).

YTLPOWR: Following the positive downtrend line breakout and bullish technical oscillators, the stock is poised for further upside towards RM0.785-0.815 levels (38.2%-50% FR) before reaching our LT objective at RM0.88 (76.4% FR). Supports are located around RM0.735 (30D SMA) and RM0.725 (20D SMA). Cut loss at RM0.72.

JAKS: The stock has been locked in a triangle pattern consolidation for the past 5 months. A decisive breakout above the resistance trend line of RM0.81 would be positive for the stock to advance higher towards RM0.865 (12 July high) and our LT target at RM0.885 (22 Aug high). Given that both RSI and stochastic indicators are hooking up while the MACD remains flattish, the odds are still in favour the bulls in the short term. Conversely, failure to break above RM0.81 will witness a retracement back towards RM0.75 (10D SMA) and RM0.73 (lower BB) levels. Cut loss at RM0.725.

TADMAX: TADMAX surged to 20M high at RM0.33 (12 Sep) after government approved the 1000-1200MW RM3.5bn gas-fired power plant in Pulau Indah, Selangor. To recap, Tadmax Indah Power Sdn Bhd would be the largest shareholder in the JV with a 40% stake while Selangor state-linked company, Worldwide Holdings Bhd, holds a 35% interest followed by Korea Electric Power Corp (KEPCO) with a 25% stake. Although LT positive as the Pulau Indah plant could provide an earnings driver for Tadmax, this is contingent on the terms of the power purchase agreement (PPA) itself and the financing to be secured.

Pending more clarity on the PPA, TADMAX’s share prices tumbled 15% on profit taking from RM0.33 to end at RM0.28 yesterday. Having said that, long term uptrend is still intact as share prices remain above RM0.27 (50D SMA) levels. A strong breakout above RM0.29 (10D SMA) will spur prices to RM0.30 psychological barrier and our LT objective at RM0.33. On the contrary, a decisive fall below RM0.27 will trigger further selldown towards RM0.245 (200D SMA) territory. Cut loss at RM0.255.

Source: Hong Leong Investment Bank Research - 25 Sept 2019