KUALA LUMPUR: AllianceDBS research has upgraded Tenaga Nasional Bhd
to a buy rating in view of potential upsides to its target price in the wake of its recent share price retracement.
The research house has a target price of RM15.80 on the counter.
"We like TNB for its quality recurring cash flow, underpinned by healthy electricity demand growth as well as steady income from its regulated transmission and distribution businesses," it said in its Friday report.
The research house said the commissioning of 2,000MW worth of new power plants in 2019 translates into a 15% increase in its existing generation capacity, which will allow TNB to gain more market share.
It added that a successful tariff adjustment to reflect higher generation cost could alleviate fears that TNB's earnings would be eroded due to rising fuel costs.
With regard to the government's energy reform, AllianceDBS said the implementation of the Imbalance Cost Pass-Through mechanism has removed the burden of fuel cost volatility and ensures strong earnings clarity for TNB.
It added that the gradual increase in piped gas price reaffirms the government's commitment to address the gas subsidy rationalisation issue.
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