Malaysia Utilities
The best has yet to come

Unsustainable gas subsidy due to fiscal budget concern and rising costs from LNG imports. Higher gas price encourages volume and gas capex growth– Petgas is the most leveraged gas play. Power sector reform for regulated return, improving earnings visibility and better valuations for TNB. Expect sector re-rating on improving outlook and yield enhancement.

Gas Malaysia; Buy; RM3.59
Price Target: RM3.95 (prev RM3.75); GMB MK
Unfazed by competition

Gas distributor with captive and underserved domestic market. Limited competition due to established network at strategic locations. Attractive mid cap play with resilient earnings and 4% sustainable yield. Maintain BUY with higher TP of RM3.95.

Tenaga Nasional; Buy; RM9.04
Price Target: RM10.80; TNB MK
Awakening of a giant

Improving outlook with increasing gas supply and sector reform. Clearer fuel cost pass-through mechanism ensures future DPS growth. Improving power demand and impending tariff adjustment are key catalysts. Maintain BUY with TP of RM10.80.

Petronas Gas; Buy; RM21.88
Price Target: RM25.70 (Prev 22.20); PTG MK
Successful transformation

Commissioning of Melaka regas plant is the key inflexion point. Removal of doubts surrounding Pengerang regas project after the general election. New regas and power plants are key growth drivers. Maintain BUY with higher TP of RM25.70.

YTL Power; Hold; RM1.78
Price Target: RM1.70; YTLP MK
Yield compression

Dividend cut to conserve cash for acquisition. New acquisitions are crucial to cushion against earnings drop after expiry of Malaysian PPAs in 2015. Maintain HOLD with TP of RM1.70

Source: HwangDBS Research - 4 Oct 2013