KUALA LUMPUR (Jan 17): CIMB IB Research has maintained its “Add” rating on Tenaga Nasional Bhd at RM15.82 with a higher target price of RM17.60 (from RM15.70) after the Energy Commission announced that the average base tariff under Regulatory Period 2 (RP2) will be 39.45 sen/kWh, which is higher than the 38.53 sen/kWh for RP1.

In a note Jan 16, the research house said Tenaga’s regulated return is reduced to 7.3% for RP2 vs. 7.5% for RP1, but the enlarged regulated asset base will boost the return on assets in RP2.

“Given the higher-than-expected regulated return versus our estimate of 7%, we revise up our FY18-19F earnings by 2.5-2.7%.

“We raise our target price to RM17.60, pegged to a higher FY19F P/E of 14x, based on the sector average (vs. 12.8x 2-year mean P/E previously). Maintain Add,” it said.