KUALA LUMPUR (Dec 15): CIMB Investment Bank Bhd maintained its view that Tenaga Nasional Bhd could still pay higher dividends despite its planned acquisition of a 30% stake in Turkey-based Gama Enerji AS for US$243 million (RM1.05 billion).

In a note today, CIMB analyst Saw Xiao Jun said Malaysian state-controlled utility Tenaga had optimised its balance sheet and capital expenditure.

"It could potentially generate RM7 billion to RM8 billion in free cash flow annually over the next three years, as its power plant projects are gradually completed.

"If it pays out only half of its free cash flow as dividends, we estimate that its dividend yield will rise to 4.8%–5.5% in FY16 to FY18, more than double its dividend yield in FY8 or FY15," Saw said.

Yesterday, Tenaga said it was buying the Gama Enerji stake from Gama Holding AS, International Finance Corp and IFC Global Infrastructure Fund.

Tenaga said the acquisition would be made through a special purpose vehicle, which would be incorporated later.

Today, Saw said the deal is expected to have a minimal impact on Tenaga's financials.

Assuming an internal rate of return of 10%, he said CIMB expected the acquisition to enhance Tenaga's earnings per share by only 1% in financial years ending Aug 31, 2016 to 2018.

"While Tenaga did not disclose any financial information on Gama Enerji, we believe that the acquisition will not have a big impact on Tenaga's earnings.

"We keep our 'add' call and (RM15.70) target price, based on CY17 P/E of 12.5x (on par with its 5-year mean). Higher dividend payout could be the potential re-rating catalyst for the stock," Saw said.

At 11:41am, Tenaga shares rose four sen or 0.3% to RM12.84 for a market capitalisation of RM72.42 billion.

Meanwhile, TA Securities Holdings Bhd analyst James Ratnam said the deal would give Tenaga exposure in the renewable energy and water supply sectors.

He said the acquisition price appeared reasonable as the bulk of the assets were relatively new and backed by long concession periods of between 30 and 50 years.

"We are leaving our earnings forecasts unchanged at this juncture, pending more financial information on GAMA Enerji. Maintain TNB (Tenaga) as 'buy' with target price of RM17.07, based on target PER of 14x," the analyst said.

(Note: The Edge Research's fundamental score reflects a company's profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)