SPOOKED by concerns over a potentially pricey acquisition of the energy assets of 1Malaysia Development Bhd (1MDB), Tenaga Nasional Bhd (fundamental: 1.3; valuation: 2.4) tumbled just over 25% from the start of the year to its recent low of RM10.26 on Aug 20.

But for the week to Aug 28, the index heavyweight led gains on the bellwether FBM KLCI as it rose 7.7% over four days as local stocks rallied alongside global peers. Has Tenaga fallen enough that it is time to be greedy?

Gains at Tenaga-C20, a Macquarie Securities-issued structured call warrant, was even more pronounced at 66.7% over the same four days, rising from a low base of 4.5 sen on Aug 24 to 7.5 sen on Aug 28.

Closing at 7.5 sen last Thursday, Tenaga-C20 — which has a RM13 strike price and 7.5-to-one conversion ratio — was at a 21.1% premium to the underlying stock that closed at RM11.20 apiece. Note that Tenaga-C20, which is the among the more actively traded Tenaga structured warrants, expires in about four months on Jan 29, 2016.

Filings show Amanahraya Trustees Bhd — Skim Amanah Saham Bumiputera had 9.24% as at Aug 21, up from 7.87% at end-2014.

Similarly, the Employees Provident Fund upped its stake from 14.37% as at end-2014 to as high as 16.49% as at Aug 24. On Aug 25, the EPF took some profit by selling 3.07 million shares, paring its holdings to 16.46%.

There are 20 analysts calling Tenaga a “buy” versus five “neutral” and two “sells”, according to Bloomberg data. Excluding Credit Suisse’s RM10, Tenaga is trading below all remaining analysts’ respective target prices — ranging from Affin Hwang Investment Bank’s RM12 to JP Morgan’s RM20, averaging at RM14.69.

It is worth noting that the strike price of Tenaga-HA, the only Tenaga structured put warrant — which allows holders the chance to profit from a stock price fall — was set at RM13.68 in late January when Tenaga shares fetched RM14.90 apiece.

If Tenaga appreciates 22% to reach RM13.68, Tenaga-C20 should theoretically be worth 21% more at 9.07 sen, assuming zero premiums to the underlying stock. But gains would be higher if Tenaga-C20 continue to fetch a premium.

While some see Tenaga, with US dollar costs and ringgit-denominated revenues losing out in a weak ringgit environment, its feedstock costs are also lower on softer commodity prices. Its fuel cost pass-through mechanism should, in principle, allow Tenaga to pass on fuel cost increases, analysts say. So operationally, it is worth another look. The question is whether it is worth betting on Tenaga paying a good price for any acquisition.

This article first appeared in Capital, digitaledge Weekly, on September 7 - 13, 2015.