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Thursday, September 18, 2014

CIMB stays ‘overweight’ on utilities, power sector


CIMB Research has maintained its “overweight” call on the overall Malaysian utilities and power sector.

While the sector’s reforms are on hold, the research house believes that counters other than Tenaga Nasional Bhd (TNB) still offer interesting upsides.

Petronas Gas Bhd is CIMB Research’s favourite pick with stable earnings and cashflows, underpinned by its long-term agreement with parent company, Petroliam Nasional Bhd (Petronas), which is expected to remain consistent as 97 per cent of its revenue is fixed.

The research house sees YTL Power Bhd’s valuations as more attractive now as the company’s outlook has improved gradually on the back of potential power plants agreements and extension of expiring ones.

Investors think its current valuations imply limited downside, while the recent dividends imply quite an attractive yield of 6.5 per cent.

As for renewable energy players, Cypark Resources Bhd is its top small-cap pick, which remains as the only exposure to Malaysia’s renewable energy aspirations.

CIMB Research had met more than 50 investors from 27 investment firms across Kuala Lumpur, Hong Kong and Singapore to discuss the outlook on the overall Malaysian power and utilities sector.

As a result, the research house found that investors were looking at alternative investment ideas as TNB’s upside is now limited.

It said sentiment on TNB is now more subdued, due to the cloudier earnings outlook brought upon by the lack of clarity on the timing of the fuel cost pass-through.

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