Based on the Security Market Line (SML) graph above, the performance of Tenaga, Genting and Pavilion stocks is shown. As we can see, risk free rate is at 3.26% and the Beta of all three company is 0.89, 1.60 and 0.33. Tenaga has a required return of 4.4189% and a very high expected return which is 13.7126%, Genting has a required return of 5.3434% and expected return at a lower value which is 2.6435% while Pavilion REIT has a required return of 3.6897% and expected return of 7.5895%.
Following the concept where a stock is counted as underperform when its expected return is lower than required return while outperform when expected return is more than required return, Genting is underperform. This statement is supported by the data in the graph which shows the expected return of Genting is only 2.6435% while its required return is 5.3434%. After studying the research on The Star Online (14 July 2016), Genting share price has deeply slip due to the decision of United Kingdom to leave European Union— Brexit. Jasmine Solana ( July 13,2016) said that share price of Genting Malaysia Bhd has dropped 4.4 percent since June 23. Some of the biggest lossers in this Brexit incident are Tata Motors and companies that linked to Li Ka-shing (Todayonline, July14 2016). One of the top 10 Asia-Pacific companies, Genting faces high risk to the slowing down economy of Britain. A 10 percent slide in pound-ringgit rate will cause earnings per share of Genting to drop by 1 percent. Other than that, Genting Bhd had a 79 percent slump in year-on-year profit on 2016. The range of the changes in profit is from $152 million to $31.9 million. The reason of this bad performance is due to foreign exchange losses besides the goods and services tax which just introduced recently. Lower profit figures is also the reason which Genting is underperforming. According to StarOnline (25August 2017), Genting share price has dropped up to 2 percent due to disappointing earning. Year-on-year, its net fall in earnings is up to 60 percent from RM476.44 to RM193.42 and it is believed that this incident is because of sloppy foreign exchange and increased operating costs. Based on the security market line (SML) graph, tenaga berhad is outperform because they have an expected return which is greater than the required rate of return.
According to PublicInvest Research on The Star Online at 8th January 2016, TNB is outperform because the demand of electricity is estimated to growth at 2%-3% per year. The commercial sector is expected to growth 2.5% compared to industrial 1.2%, which is take advantages to the group because the electricity tariff for commercial sector is higher than industrial.
Next, the firm pay attention to find opportunities abroad to increase its revenue. The firm recent acquisition of 30% stake in Gama Enerji. Gama Enerji is a company in Turkey and their business is take place in Turkey and other surrounding country. Due to Turkey is the largest power markets in Europe and demand for electricity is expected to grow 6% per annum until 2020. Hence, it will provide long term earnings to the firm.
Based on an estimated RM440mil PPA savings per annum, the firm is forecast there will be additional RM730mil PPA savings until August 2017. Not only this, the firm has start up a legal process to set aside the additional taxes and fines of RM2.1bn imposed by the Inland Revenue Board for the 2013 and 2014 years of assessment. Even if TNB failure to succeed in the tax appeal, its tax rate will be at normalised rate of about 20%-22% due to some non-taxable income. Failure in the tax appeal would not have a significant impact to TNB valuation.
According to PublicInvest Research on The Star Online at 10th May 2017, TNB announced that its wholly-owned subsidiary, had been awarded a contract for the operation and maintenance (O&M) of the Balloki Combined Cycle Power Plant in Pakistan. The period of the contract is 12 years at US$176mil.
PublicInvest Research views this positively because it can improve the non-regulated revenue, and also help TNB to expand their business to other country. The Balloki Power Plant forecast to operate in 2018. This is the largest single power plant O&M contract for TNB. Lastly, according to the annual report 2017, the revenue had gradually increase from RM 35848.40mil to RM 47416.90mil. Net profit attributable to the owners of the company had been increase from year 2012 to 2014, but decrease in 2015 and 2017. From the aspect of earnings per share, TNB has achieve 80.71sen and 122sen during year 2012 and 2015. The return on asset of year 2012 was 4.5% had been increase to 6.6% in 2015 but decrease in year 2016 and 2017. Based on the security market line (SML) graph above, Pavilion REIT is outperform because they have an expected return which is greater than the required rate of return.
According to Starproperty at 26th April 2013, Pavilion REIT is outperform because they have better rental growth and new assets may inject in the period of medium to long term. Maybank Investment Bank Research said that the firm will get good performances in the financial year 2013 because most of the lettable area have to renewal in third quarter and assumed the rental growth rate would increase in double digit in subsequent year.
The demand of tenant is more than supply due to the strategic location, thus providing plenty of rental reversion upside, considered the rental is lower than others shopping mall. If we assume a cap rate of 6.5% and the average rental rate of RM6.70 per square feet per month for Farenheit88 Mall, it was worth RM495mil.
Next, Hwang DBS-Vickers Research said that Pavilion REIT was main beneficary of a positive Malaysian macroeconomic and retail outlook. When mass rapid transit works and links were in place, they can get more profits.
Moreover, the price of REIT had increase 14% since January is outperform the FTSE Bursa Malaysia KL Composite Index’s 2% rise.
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