The research house said on Sept 29 although Tenaga has underperformed the index after releasing a poor set of 3QFY09 results in July, it expected some selling pressure after the company announces potentially lacklustre 4Q numbers in October.

"This would, however, present an excellent opportunity to accumulate the shares on weakness. With the potential for a tariff hike in January 2010, we think Tenaga has gotten cheap enough for us to upgrade the stock to a Buy with our new fair value at RM9.38," he said.

OSK Research said aside from the pallid core profit margins, the weakening of the ringgit against the yen in 4QFY09 should see Tenaga chalk up some RM255 million in translation losses.

The Prime Minister’s recent announcement that the somewhat controversial coal fired 300MW Lahad Datu power plant would now be built in Felda Sahabat, some 100km from Lahad Datu, seems to indicate that the Federal Government is prepared to make some tough decisions in order to ensure stable and
sufficient electricity supply, it said.

It also said the upcoming gas price review in January 2010 is overdue.

"We think the Government may raise the price of gas with an associated electricity tariff hike to ensure a continued reduction of subsidies although we are currently unable to make an estimate of the quantum of increase," it said.