We believe values has re-emerged after the stock tumbled 25% from a 52-week high to close at RM9.78 (+27.8% upside to HLIB Research TP RM12.50), supported by stable FY19-22 EPS CAGR of 9.9%, undemanding valuations of 10.9x FY22E (-30% vs 5Y mean 15.7x) and 1.03x P/B (-26% vs 5Y mean 1.4x) coupled with attractive DY of 6.1% for FY21-22. Although share price could remain tepid due to expectations of slower consumption arising from ongoing MCO 2.0 (the impact is less severe than MCO 1.0 more industries are allowed to operate), further liquidations by foreigners (foreigners’ stake at lowest level of 14% in Sep 20 since the implementation of IBR & ICPT in 2014) and ESG concern due to the dependents on coal power plant, we believe these risks have been largely priced in. Key re-rating factors for the stock include: a) active capital management; b) a fair outcome from RP3; and c) operational savings from Tenaga’s reorganisation exercise.

Selling pressures likely to taper off; potential downtrend reversal amid the Harami cross pattern. After sliding 25% from 52-week high of RM13.10 to RM9.78, we see potential downtrend reversal amid a steeply oversold position and the formation of a bullish Harami cross pattern. A decisive breakout above RM10.00 psychological barrier will spur prices higher towards RM10.40 (20W SMA) before advancing further to our LT objective at RM11.00 (200D SMA). Key supports are situated near RM9.50 (52-week low) and RM9.30 (lower downtrend channel). Cut loss at RM9.10.

Source: Hong Leong Investment Bank Research - 29 Jan 2021