Barisan Nasional election victory to see power sector reforms continue


National power utility Tenaga Nasional Bhd (TNB) added 4.8%, or 39 sen, to RM8.17 on a hefty volume of 31.6 million shares, reaching its highest price since 2007. With the incumbent Barisan Nasional (BN) coalition retaining government, reforms in the power sector, ongoing since 2011, are set to continue.

And TNB, analysts concur, will be the biggest winner among domestic power players now that the firm can go ahead with its long-discussed fuel cost pass-through mechanism.

PublicInvest Research noted that fluctuations in gas prices would remain earnings-neutral to TNB, as promised by the Government, until the fuel cost pass-through mechanism is implemented.

“This will be done either through a direct pass through via adjustments to the electricity tariff, as gas prices are adjusted upwards every six months, or through a stabilisation fund.

“We understand that the group is already in talks with the Government regarding details of setting up the latter, and believe that with the election uncertainty out of the way, progress on the discussion would be expedited so as to resolve the issue before the Sungai Udang regasification terminal commences operations,” Public Bank's research arm said.

An expansion in electricity supply is also on the cards, after the BN promised to expand the supply of electricity to another 6,000 homes in Peninsular Malaysia, 60,000 in Sabah and 80,000 in Sarawak in its election manifesto, signifying additional revenue sources for TNB.

“While household consumption of electricity remains low compared with the commercial and industrial sector, growth from this segment remains the highest among all at 7.4% as at the first half of 2013,” PublicInvest Research said.

In addition, TNB has been shortlisted to bid for the two coal-fired power plant tenders floated by the Energy Commission for a greenfield 2,000MW and 1,000MW brownfield facility. The results of the tenders are expected by the second half of the year.

TNB has been touted as a frontrunner due to its experience in coal-power generation, compared with other independent power producers whose plants are chiefly gas-fired.

“Given that TNB's power grid remains the only off-taker for new power plants, we continue to view the group as the favourite to secure new open tenders, and the competitive bids will drive down its fixed power generation costs even if the national utility does not secure the tenders,” AmResearchsaid.

“With foreign shareholding at 19% as at end-March this year versus its peak of 28% back in 2007, the stock still trades at an attractive price-to-book of 1.2 times at the lower range of an adjusted 1.1 times to 2.7 times over the past five years.”

Valuation-wise, TNB offers an “attractive” forward price-to-earnings of 11 times, AmResearch said.

Gamuda Bhd

This politically well-connected stock saw its shares jump 8.4% or 37 sen to RM4.41, a level not seen in six years, with 48.2 million shares changing hands.

According to CIMB Research, Gamuda stands out as the “biggest beneficiary” of the rollout of the second and third lines of the Klang Valley mass rapid transit (MRT), known as the circle and radial alignments, considering its role as the project delivery partner for the above ground portion of the first line of the MRT, stretching from Sungai Buloh to Kajang, as well as the contractor for the underground tunnelling portion under its MMC-Gamuda joint venture.

The firm, helmed by industry veteran Datuk Lin Yun Ling, is also eyeing RM10bil worth of jobs over the next 12 months, besides having reportedly thrown its hat into the ring for the Malaysia-Singapore high speed rail (HSR), which has an indicative price tag of some RM40bil, including rolling stock. Furthermore, Gamuda has been linked with the long-delayed RM7bil Gemas-Johor Baru electrified double-tracking project, after it bagged a similar contract for the Ipoh-Padang Besar track, scheduled for completion in 2014.

CIMB Research also estimates that some RM9bil worth of rail-related tenders may be called from 2014, possibly re-rating construction stocks. The total value of the contracts may be in the region of RM70bil, its calculations show.

“These jobs will be positive for the sector over the longer term. Screening through all the recent major rail projects that will drive sector activities from end-2013 including the MRT 2 and 3, KL-Singapore HSR and JB-Singapore Rail Transit System what is clear is that most of the projects are targeted to start works in 2014.

“This also suggests that the tender and award phase would only start towards the later part of 2013,” the brokerage said.

It added that the value of the rail projects to be dished out in 2013 could dip, as most jobs in the pipeline have yet to gain approval.

“This means that 2014 could turn out to be a recovery year, as earlier packages for the MRT would have been awarded by then,” CIMB Research said.

UEM LAND HOLDINGS BHD

UEM Land Holdings Bhd, the largest landowner in Johor's Iskandar region, settled at RM2.98, 11.4% or 34 sen above Friday's close a two-year high with 60 million shares traded.

With the polls out of the way, the property sector's most pressing concern has been lifted, and both institutional funds and retail investors are likely to take a position in higher-beta and cyclical stocks such as property.

Investors looking to do so will not be able to overlook UEM Land, which has a staggering 4,451ha of land in the thriving Iskandar area with a gross development value of RM31bil.

Analysts believe UEM Land remains the “best proxy” to Iskandar because of the firm's massive landbank in Nusajaya and the numerous catalyst projects taking place there, coupled with risng property prices and land values.

“Also, UEM Land is the flagship property arm of Khazanah Nasional Bhd the planner and driver of Iskandar. The group's newest project in Nusajaya is its 1,821ha Gerbang Nusajaya, which is set to rival even Puteri Harbour as its flagship project.

“There was a flurry of announcements in Gerbang Nusajaya in the fourth quarter of last year, starting with the 40:60 joint venture with Ascendas Land to develop an RM3.7bil 210ha integrated technology park,” CIMB Research said.

PublicInvest Research also noted that the recent interest shown in Iskandar has been encouraging, amid sold-out projects and land deals involving reputable individuals and firms.

CIMB Group Holdings Bhd

CIMB Group Holdings Bhd's rally yesterday came as no surprise, given its connection to incumbent Barisan Nasional's win in the 13th general election (GE13). Most research houses have upgraded the stock to a “buy”.

Although this year remains a challenging one for the banking sector, with the gradual implementation of the Basel III requirements, the conclusion of GE13 should remove the political risk overhang.

Malaysian banking stocks have lagged against regional peers in terms of share price performance, moving upwards by a marginal 3.7% year-to-date. Regional banking stocks such as Indonesia's big-cap banks were up 23% on average year-to-date, while large Thailand banks and Singaporean banks were up about 14% to 15% year-to-date.

The counter rose 74 sen yesterday to RM8.35, its highest since mid-August 2011. CIMB shares were heavily traded, making it one of the top-10 stocks based on volume, with 74.33 million shares being traded.

Alliance Research banking analyst Cheah King Yoong believes that post-GE13, CIMB serves as the best proxy to capitalise on the expected relief rally, as the external risks and domestic political uncertainties subside.

Despite its strong fundamentals, being a prime beneficiary of the Economic Transformation Programme-related loans, and its exposure to the Asean region, CIMB has been a laggard relative to its domestic banking peers in the past year.

“We believe that such relative share underperformance was mainly dragged by persistent external risk,” he said.

Additionally, Cheah said that CIMB was highly vulnerable to an increased market risk premium leading up to GE13, particularly in view of its high foreign shareholdings.

RHB Research said it sees the stock as a key beneficiary from the removal of the political overhang and expects a strong catch-up in performance ahead.


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