KUALA LUMPUR (Aug 10): Tenaga Nasional Bhd's (TNB) shares continued to decline for the third straight day, dipping as much as 4.6% in early trading, in line with the weak broader market.

As at 3.20pm, the stock shed 46 sen or 4.04% to RM10.94. A total of 8.01 million shares were traded. It hit an intraday low of RM10.88, emerging as one of the top decliners on Bursa Malaysia today.

Last Thursday, the stock posted its largest decline in a year, dropping 4.42% as the political ramifications around the 1Malaysia Development Bhd (1MDB) saga weighed down on the stock.

TNB shares have lost 13.9% since mid-July, when the national utility announced its non-binding proposal to acquire 1MDB’s remaining power assets, raising bailout concerns.

The stock has declined 20.28% since its peak in May this year of RM14.30.

When contacted, an analyst with a local bank pointed out that TNB is one of the large-cap stocks that is hit by the slump in FBM KLCI. The benchmark index fell 1.79% or 30.18 points to 1,652.47 as at 3.24pm.

“Most shares are hit by the (weak) market. There is broad-based selling (of most securities) in the market today,” the analyst told theedgemarkets.com.

The analyst sees continued downside risks to TNB's stock as concerns that the utility may be overpaying for 1MDB’s assets persist.

TNB recently purchased a 70% stake owned by Edra Global Energy Bhd, 1MDB's wholly-owned subsidiary, in the 2,000MW coal-fired plant in Jimah, Negri Sembilan for RM46.98 million. 

In a note last Friday, PublicInvest Research said TNB faces minimum downside risk as the research firm believes that “the worst has been factored in” and that further depreciation to the stock is “not justified.”

PublicInvest Research said as the fundamentals of the group remain intact, and currently trades at inexpensive valuations of 9.4 times and 9.2 times financial year 2105 forecast (FY15F) and FY16F earnings per share (EPS) respectively, the weakness in its share price is an opportunity to accumulate the stock.

The research firm noted that the depreciating ringgit against the US dollar should not be a concern either as 80.9% of its borrowings are ringgit denominated, with only 6.3% in US dollar and the remaining 12.7% in yen as at May 31, 2015.

TNB (fundamental: 1.3; valuation: 1.8) would also benefit from Imbalance Cost Pass-Through framework under the power sector reform as it would enable TNB to pass on higher fuel and generation costs to consumers, PublicInvest Research added.

“We strongly believe any further weakness is not justified as the worst is already being factored-in, even the assumption of the acquisitions making no earnings contributions,” the note read.

“With the government being an interested party on both ends through its ownership of both entities, approval for the transaction will come from minority shareholders," it said.

PublicInvest Research believes that it is unlikely that minority shareholders will sanction the RM18 billion acquisition. 

(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.)