Thursday 28 Mar 2024
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LAST FRIDAY, there was a sharp selldown in Tenaga Nasional Bhd’s shares by foreign institutions on news that the national utility company may take over 1Malaysia Development Bhd’s (1MDB) power assets worth an estimated RM16 billion.

Tenaga’s share price fell to as low as RM13.36 in a matter of hours, before closing at RM13.70, down 2.14%.

warrants-update_58_1068The immediate fear is that Tenaga (valuation: 1.80; fundamental: 1.3) would be used by the government to bail out 1MDB and end up paying a high price for the assets.

However, such speculation isn’t new to the market and Tenaga president and CEO Datuk Seri Azman Mohd said in a recent interview that any acquisition of 1MDB’s power assets would have to get the approval of Tenaga’s board.

He also said that if 1MDB sold its power assets, it would not be in a position to dictate the price, and insisted that any acquisition must add value to the group.

Hence, even though there may be some negative sentiment in the short term should Tenaga acquire 1MDB’s power assets, the impact in the long term would be neutral at the least, if not positive, since there is nothing wrong with 1MDB’s power assets from an operational perspective.

In the light of that, Tenaga’s share price weakness on the knee-jerk selldown by foreign funds offer a buying opportunity for Tenaga’s shares.

Investors could also look at the warrants, which have similarly been sold down alongside the mother share.

There are a number of Tenaga warrants trading in the market at the moment, although they are all structured warrants.

The most actively traded last Friday was Tenaga-C13 — a European call warrant issued by Macquarie Capital Securities — that had a volume of 8.5 million. The warrant’s price closed at 20 sen apiece, down 13%. With a seven-to-one conversion ratio and a strike price of RM13, the warrant is trading at a premium of 5.1%.

Note that Tenaga-C13 expires on Aug 3.

The second most traded warrant with a volume of 3.4 million was Tenaga-C15, a European call warrant that closed at 6 sen last Friday, down 14.3%.

With a strike price of RM13.80 and a conversion ratio of 15-to-1, the warrant has a premium of 7.3%. However, it does have a slightly longer expiry date — on Dec 31.

The strong rebound in Tenaga’s share price after the initial fall shows that there is still strong support for the stock from local institutions. After all, analysts’ rating for Tenaga average at RM16.41 from 19 “buy” calls and four “hold” calls.

This article first appeared in Capital, The Edge Malaysia Weekly, on May 25 - 31, 2015.

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