Genting Bhd - Enters into PPA for Indonesian power plant BUY

- Genting Bhd announced that it has entered into a 25-year power purchase agreement (PPA) for Banten Power Plant, with PT PLN (Persero), which is the Indonesian state-owned electricity company. Genting Bhd has a 95% stake in the project. The balance 5% equity interest is held by PT Hero Supermarket Tbk, which is listed on the Jakarta Stock Exchange.

- The power plant project involves the financing, construction, commissioning, operating and maintenance of a coal-fired power plant with a capacity of 660MW in West Java. 

- The power plant will be developed and operated on a build, own, operate and transfer basis for a period of 25 years. 

- Bloomberg quoted Listrik Negara as saying that it will buy power at 5.99 US cents/KwH from Banten Power Plant. However, there were no details on tariff adjustments for any increase in coal costs.

- The power plant is expected to start operations in FY17F. The cost of the project is about US$1bil (RM3.2bil), of which 75% is expected to be financed via non-resources debt while the balance 25% is expected to be financed via equity or/and shareholders’ loans. 

- We are neutral on this development. We do not expect any earnings contribution in the short-term since the power plant would only be completed in FY17F. 

- In the longer-term, we reckon that if the PPA for the Genting Sanyen Power Plant in Malaysia is not extended beyond FY15F, then earnings contribution from the Banten Power Plant would compensate for the loss of earnings from the power plant in Malaysia.  

- Genting Bhd is not expected to face any problems financing the cost of the Banten Power Plant. As at end-FY11, Genting Bhd had net cash of RM586.5mil at the company level. 

- In May 2012, the group established a medium-term note programme of up to RM2bil. Out of the RM2bil, we estimate that half would be used to redeem the US$300mil bonds (RM954mil), which are due in FY14F. 

- Power division accounted for 9.7% of Genting Bhd’s revenue and 9% of its pre-tax profit in FY11. We maintain a BUY on Genting Bhd for its indirect casino exposure to Malaysia, Singapore, Britain and U.S.

Source: AmeSecurities