KUALA LUMPUR (Dec 27): AmInvestment Bank Research has  a buy rating on Tenaga Nasional Bhd with a fair value of RM17.72 and said the stock is its top pick in the sector.

In a note today, the research house said it continues to like the company due to: 1) its stable operating environment with the implementation of Incentive Based Regulation (IBR); 2) bottom-line enhancement from new generation capacity (1,000MW Manjung unit 5 in 2017 and 2,000MW Jimah East in 2019); 3) higher dividend payout (the group had recently announced a more aggressive policy of paying 30-60% from 30-50% of net profit, giving a yield of 5%) to potentially drive share price re-rating ahead; and 4) valuations are attractive, trading at 11.6x CY18F PER.

Meanwhile, AmInvestment Research said it remains “Overweight” on the power sector.

“We expect unit demand to normalise going forward after eking out a 1.0% growth in 2017 following an exceptional 2016, which was lifted by the El Nino weather phenomenon.

“For CY18, we believe demand will pick up to 3.2% on the electricity demand/GDP growth multiplier in Peninsular Malaysia, which has been close to 0.5x-0.6x.

“Our stance on the sector is invariably tied to Tenaga, which is trading at attractive valuations,” it said.