HLIB Research 5 April 2011 (Power Sector;Traders Brief) - Source: Vernon Lim Lee Cherh (HLB)

Malaysia Power: Power On

§ Malaysia Power demand to increase by 5% pa inline with Malaysia ETP mission to achieve annual economic growth of 6% from 2011-2020.

§ Reducing natural gas price subsidy, importing natural gas at prevailing market price and high coal price mean higher operating cost to Tenaga while IPPs remain unaffected from cost pass-through mechanism.

§ No automatic fuel pass-through mechanism to end users. Continued delay in tariff revision to account for higher fuel cost (coal) has affected Tenaga’s profitability.

§ Nuclear power plan facing strong objections, and maybe scrapped. Removal of nuclear power plan means higher energy mix cost to Malaysia Power sector

§ We initiate the Power Sector with Neutral:

§ YTLP (BUY, TP RM2.70) – Strong recurring and stable income, relatively unaffected by fluctuations of energy prices. Higher earnings contribution from foreign investments. Large cash piles of RM8bn, allowing acquisition opportunities.

§ Tenaga (Hold, TP RM6.15) – Leveraged to Malaysia economic growth of 6% pa. Impacted by surging coal cost and potential natural gas price revision. Deferred tariff revision by government detrimental to Tenaga’s earnings. Review in rating subject to tariff revision that addresses both gas and coal cost.


FBM KLCI: More profit taking consolidations

§ Last week's breakout rally and positive domestic newsflows have brightened the FBM KLCI outlook in the short to medium term. However, the index should pause for profit-taking given the overbought signals, as well as awaiting clues on the monetary outlook and QE stance ahead of the FOMC minutes today.



Stock to watch - PERISAI - Further rallies present good opportunity to pocket some profits

§ As a bearish engulfing pattern was formed on 31 Mar, Perisai need to surpass its previous high of RM0.93 to prevent an early halt in the current uptrend (started from RM0.51 on 3 Mar). We see short term weakness on prices and recommend investors to SELL INTO RALLY.

§ Immediate resistance zones are RM0.90-0.95 whilst support levels fall on RM0.80-0.85.