- We reiterate our
BUY call on Tenaga Nasional, with an unchanged DCF-derived fair value of
RM7.35/share, which implies a CY12F PE of 13x and a P/BV of 1.1x.
- Tenaga has signed a
Memorandum of Understanding (MoU) with Indonesia’s state-owned utility PT PLN
(PLN) and PT Bukit Asam (Bukit Assam), a concessionaire for coal mining and a
holder of the Production Operation Mining Permit in Indonesia.
- The MoU, which has
an extendable 2-year tenure, covers the development of a coal mine, coal-fired
power plant and an undersea interconnection transmission line from Telok Gong
in Malacca to Garuda Sakti in Sumatra, Indonesia. The proposed power plant and
coal mine are expected to be located in Peranap – 250 km southeast of
Pekanbaru, Sumatra.
- We understand that
the undersea line will transmit electricity between the power grids in
Peninsular Malaysia and Sumatra, not only energy generated from the proposed
coalfired power plant. This development is not a surprise as it forms part of
the proposed ASEAN power grid linking Cambodia, Vietnam, Laos, Thailand,
Malaysia, Singapore, Brunei and Indonesia.
- We also understand
that this power plant, which will likely be a conventional plant, could have an
initial capacity of 1,000MW. But as this plant will be using low-grade coal
from the coal mine, it may cost lower than Tenaga’s RM5bil new 1,000MW block in
Janamanjung, Perak.
- The cost and equity
stakes for the power plant, coal mine and undersea transmission line are still
under evaluation. But we understand that Tenaga and PLN will equally share in the
majority stake in the power plant, with Bukit Assam owning the minority. For
the coal mine, in which Bukit Assam will have the majority stake, Tenaga and
PLN will be minority stake holders.
- We view this
development positively as the consumption profile in Sumatra, which tends to
use more electricity at night vs. day time, complements Peninsular Malaysia and
leads to a more efficient usage of resources. As the distance is also shorter
than the earlier proposed undersea cable to the Bakun dam in Sarawak, the
potentially lower cost of the transmission line improves the project
feasibility. But as this is a long-term development and may require further negotiations
between the two governments, we maintain FY12F-FY14F net profits.
- The stock currently
trades at a P/BV of 1x, at the lower range of 1x-2.6x over the past 5 years.
Earnings-wise, Tenaga offers an attractive CY12F PE of 11x compared with the stock’s
three-year average band of 10x-16x.
Source: AmeSecurities
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