Malaysia's benchmark stock index surges to all-time high

PHOTO: Malaysia's benchmark stock index surges to all-time high

PETALING JAYA - Malaysia's benchmark stock index surged to an all-time high, powered by gains in blue chips, in particular Tenaga Nasional Bhd (TNB) shares, amid mixed regional sentiment.

The FTSE Bursa Malaysia KL Composite Index (FBM KLCI) rose 6.14 points to close at 1,824.29, off an intra-day high of 1,840.12.

Nevertheless, the market breadth was negative, with 446 counters closing in the red, compared with 324 counters registering gains and 325 counters trading unchanged.

Volume was moderate at 1.24 billion shares worth RM2.1 billion (S$820 million).

"The market traditionally holds up pretty well in December, driven by large-cap stocks, but there would be profit-taking in the lower liners," a head of research at a local bank told StarBiz.

According to analysts, the broader market remained relatively weak despite the positive movement of the FBM KLCI. This was evidenced by the negative market breadth and moderate buying momentum, which analysts said indicated continued profit-taking and selling, particularly among the small and medium-cap companies.

"Yesterday's stock market performance was exceptionally well because of TNB's share price gain. The counter was the biggest contributor to the index's rise," the head of research said.

Providing much boost to the local bourse, shares in the national utility company advanced 83 sen to close at a 20-year high of RM10.72, with 46.7 million shares being traded.

The counter, which hit an intra-day high of RM12.60, was the top gainer Tuesday and added 9.27 points to the FBM KLCI.

The significant gain of TNB came after the Government announced on Monday that electricity tariffs in Peninsular Malaysia, Sabah and Labuan would be raised by about 15 per cent with effect from Jan 1, 2014.

CIMB Equities Research in its report said the electricity tariff hike was positive for TNB, as the new structure included components for a fuel cost pass-through and increases in the base tariff.

It said the tariff hike also addressed TNB's liquefied natural gas (LNG) costs, thus providing stability to its expenditure moving forward.

TNB remained as CIMB's top pick for the power sector. The local research house said: "The tariff hike is the main catalyst that would propel TNB's share price higher."

Nomura Equity Research concurred. The Japanese investment bank said TNB's base tariff hike, full LNG cost pass-through and extent of reform was a positive and welcome surprise.

"In our view, not only are these measures expected to meaningfully boost the level of TNB's profitability and returns over the medium term, but the Government's willingness/ambition to have electricity prices reflect the true cost of production also bodes well for the stability of returns, which we believe should in itself see TNB commanding more generous valuations," Nomura said.

The recently announced structure would see electricity tariffs in Peninsular Malaysia go up by 14.89 per cent, or 4.99 sen per kilowatt-hour (kWh), from the current average of 33.54 sen/kWh to 38.53 sen/kWh, from the start of next month.

The new structure included a base tariff hike of 2.69 per cent or 90 sen/kWh for TNB.

Under the new structure, the domestic gas price would be raised from the current subsidised rate of RM13.70 per million metric British thermal unit (mmbtu) to RM15.20 per mmbtu, while the price of imported LNG would be fixed at RM41.68 per mmbtu.

The base price for coal, on the other hand, would be raised from US$85 (S$106.44) per tonne to US$87.50.

"With the tariff hike approved, reforms in the power sector are now a reality," said Alliance Research, which yesterday upgraded TNB to an "outright buy", with a higher target price of RM13.

The research house had previously rated TNB as a "trading buy", with a target price of RM11.86.

Affin Research, which maintained its "buy" call on TNB, also raised its target price for the counter, from RM11.50 to RM14.70.

"The base tariff hike is the first crucial step towards the rollout of the long-awaited incentive based regulation (IBR) mechanism for TNB," Affin said, pointing out that the imminent IBR would provide good earnings visibility and cashflow prowess to TNB in the future.