KUALA LUMPUR (July 29): Tenaga Nasional Bhd fell after analysts said the state-controlled utility's proposed power plant deal with 1Malaysia Development Bhd (1MDB) could be value dilutive for the buyer.

At 12:30pm, Tenaga (fundamental: 1.3; valuation: 1.8) shares settled lower at RM12.12, with some six million shares having exchanged hands. The stock had earlier fallen as much as 14 sen or 1% to RM12.10.

Tenaga has submitted an indicative non-binding proposal to acquire five domestic and eight international power assets from 1MDB unit Edra Global Energy Bhd. For now, the prospect of a deal will be closely watched, especially following the Malaysian Cabinet reshuffle yesterday.

Today, Affin Hwang Investment Bank Bhd said it was mindful of "TNB’s (Tenaga) potentially higher risk profile, due to concerns over a possibly value-dilutive acquisition of Edra Global Energy Bhd’s power assets".

Besides the potential Tenaga-1MDB deal, Affin Hwang said it was not expecting any third quarter earning surprises for Tenaga.

Tenaga's financials for the third quarter ended May 31, 2015 (3QFY15) are due to be announced tomorrow (July 30).

“We believe a positive earnings surprise is unlikely due to tepid electricity demand growth in 3QFY15; we observe there is minimal use of oil and distillates, while liquefied natural gas (LNG) usage remains below the stipulated 1,350 mmscfd parameter.

“Unless there is a spike in opex or taxation, we believe negative earnings surprises are unlikely either,” said Affin Hwang.

Affin Hwang said it maintained its "hold" call on Tenaga shares, with an unchanged target price of RM12.

(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.)