We Believe the Risk-reward Profile Has Become More Attractive After Tumbling 18% From a 52-week High of RM11.90 to RM9.73 Last Friday (+28.4% Upside to HLIB TP RM12.50).

Share price could remain lukewarm, due to expectations of slower consumption arising from ongoing lockdowns (although the impact is less severe than MCO 1.0 as more industries are allowed to operate), further liquidations by foreigners with 12.2% in May (vs 15.6% a year ago and below 14% in Sep 20 since the implementation of IBR & ICPT in 2014) amid local headwinds, and environmental, social and governance (ESG) concerns due to the dependents on coal power plants.

Nevertheless, we believe these risks have been largely priced in, supported by stable FY20-23 EPS CAGR of 5%, undemanding valuations of 11.3x FY22E (-28% vs 5Y mean 15.7x) and 1.01x P/B (-22% vs 5Y mean 1.3x) coupled with attractive DY of 5.1% for FY21-22. Key re-rating catalysts include: 1) active capital management; 2) a fair outcome from 3 rd Regulatory Period (RP3); and 3) operational savings from Tenaga’s reorganisation exercise.

Any weakness from current prices towards our envisaged downside objective (after the neckline support breakdown from Double Top) near RM9.48 is a good opportunity to accumulate for an eventual relief rally towards RM9.96-10.67 zones.

Source: Hong Leong Investment Bank Research - 5 Jul 2021