TENAGA - More Thoughts

I briefly blogged about my TENAGA holdings performance here.  Since then the price has continued to rise from 11.86 to 12.32.  Has the price risen too fast too soon?

Here's some additional considerations.

Profile

Key notes:  Largest electric utility company in Malaysia (pretty much a monopoly, with pricing power, in line with our everyday experience as Malaysians).

Long Term Price Charts

Key notes:

1. That long term uptrend line has a fundamental reason behind this.  Doesn't mean it is a concrete support.  But even if it is breached one day in the future, give enough time for markets to calm down and it will rise back up to respect that long term uptrend line again, due to its fundamental profile.
2. This is price returns, ignoring dividends.  But dividends are key to understand TENAGA.

Key Fundamental Statistics

Long term numbers generally don't lie (although care is needed in the start date selection).  

Key Notes:

1. RPS CAGR is 2.47% over past 10 years but easy to forget that this is the number 1 electric utility in the country for a long time with the widest penetration.  Don't expect rapid rise in this parameter (except for when it increases prices from time to time) but don't expect this to drop either (ignoring temporary brief business contraction during crisis).   This broadly matches real inflation growth, something desirable a highly diversified portfolio if all else is equal.
2. EPS CAGR.  The negative figure needs care in interpreting, and easy to dismiss the quality of management as poor, however, this business is of critical interest to Malaysia government (politicians), and so, is not immune to non-market (e.g. political) influences / intervention in the past (and future), like other developing countries.  It shouldn't be (in a free, independent market), but in Malaysia, this risk can never be fully eliminated, regardless of who is in power.
3. DPS CAGR.  Whilst the developing mentality / political risk is always there, it doesn't necessarily mean that it is constant, and this is where timing matters.    Long term, the dividend growth of 5.68% per annum CAGR DPS growth is market friendly, and we can't complain too much.
4. NAPS CAGR.  2.6% is decent for this type of company long term.

Foreign Shareholding Ownership %

TENAGA is generally transparent in its website on this topic.

Whilst there are the occasional gaps, I compiled the following and correlate it to its price chart (excluding dividends).  The correlation is quite clear.

Some takeaways:

1. TENAGA foreign shareholding is around 12%-13% at end Feb 2024.  My guess is it may have risen last Friday.
2. Historically, when foreign shareholding % drops, TENAGA price drops.  The correlation is very clear.
3. A few months ago (see RHS of chart), there has been some divergence.  This indicator is likely lagging.
4. In 2017-2018 peak, the foreign shareholding % doubled today's level.  The only question mark is will foreigners, after such a long absence, comes back to Malaysia like the old days, or is there something permanently lost in foreigner's eyes on Malaysia after 2020?  This could be both climate related (global climate risks, greening, the global need to act urgently before climate catastrophe) and political (the prosecution of 1MDB?).  Note the flat blue-line after 2020.  Otherwise, it's a no-brainer - buy TENAGA and hold and wait for foreigners to come back.  TENAGA cannot completely eliminate coal overnight, however, for TENAGA to change its business profile is a process that takes time.  Similar, lost trust takes longer to rebuild.  

The importance of Dividends, buy when cheap and do nothing most of the time

A slightly busier chart - 3 lines.  Closing Price vs Adjusted Close.  The difference between the 2 is that the Adjusted Close includes dividends.

Key Notes:

1. Excluding dividends, TENAGA hasn't made a new price high yet.
2. Including dividends, TENAGA has already made a new high.
3. The CAGR are as follows:

Note the dividend gap yield translates to 5.1% (2.9%--2.2%) per annum CAGR difference.   This is a sizeable yearly difference, and points to the edge investors have when they do nothing most of the time and just hold the company.

To avoid the negative 2.2%, it simply means TENAGA is a stock that you want to wait for a low price to enter. It doesn't have to be at the very low, but as long as it is below average / below 3rd quartile, it should be seriously considered for addition.

It also means at extremes, you must sell TENAGA.  Especially when the aim is 9% per annum total returns over the long term.   However, we do note that +2.9% per annum CAGR should match FD over the longer term.

Concluding Remarks

For long term investors aiming for at least 9% per annum returns in a highly diversified long term divided stock portfolio:

1. TENAGA is a stock that you want to own when its price has fallen.   
• Over the past 3 decades, there are probably 8-10 opportunities when there is significant crash, to buy and hold.  
• During this period, the dividend yield can expect to return 4.5% to 6% per annum returns and price returns does the rest.
2. TENAGA is not a trading stock.   
• Because there's only 8-10 opportunities over the past 3 decades, the odds of getting out too early is high, meaning the odds of not being able to get back in after getting out at attractive price is also quite high.
• Better to stay invested in this type of stock.
3. TENAGA is a stock where once you own, you want to do nothing most of the time, until you see extremes in market over-valuation.
• Last Friday's price action to spike up from 12 to 12.32 is not over-valuation extremes.  Long term investors should ignore.
4. TENAGA dividends - when price is low - is attractive.
• Additionally, it's long term historical DPS growth has been good, and my personal belief is that the long term future dividend growth is also decent (maybe a bit lower than the past).
• Additionally if electricity prices were to spike in the future (which can lead to high general inflation due to its prevalence, e.g. arising from high energy prices), you definitely want to own this stock before these stressed times occur. 
5. Over long term, this stock provides a natural real inflation hedge to retailers, institutions, pretty much everybody in Malaysia.
• Common sense really, and is indeed our everyday experience.
6. Price action and long term dividend yield dominates investing decision.   
• Quarterly reports is just monitoring after the fact, to see, keep abreast, but not critical to anticipating the future (which noone can do reliably all the time) and not critical for the portfolio to deliver the long term 9% per annum returns.