- 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.
- Business Times reported today the Energy Commission chief
executive officer Datuk Ahmad Fauzi Hasan as saying that the decision for the
extension of the first generation independent power producers (IPPs) will be
revealed in September this year.
- The restricted tender for the IPPs to reduce their
capacity payments in exchange for the extension of their power purchase
agreements (PPAs) by another 10 years will close this month. Hasan said that
the PPAs expiring in 2016-2017 will not be renegotiated after being replaced
with the new contractual terms.
- Hasan indicated that the capacity payments could be reduced
by as much as RM6/kWh. This is much lower than earlier reports by The Edge that
capacity payments could be lowered by up to 80% from RM35-RM50/kWh to RM6/kWh.
- The earlier reports had said that the six bidders –
Powertek, Genting Sanyen Power, YTL Power Generation, Port Dickson Power,
Segari Energy Ventures and Tenaga – were in
the running to extend the power generation capacity of up to 2,350MW,
with negotiations at internal rates of below 10%.
- This means that 57% of the PPAs of the total first
generation capacity of 4,115MW could be extended. If the capacity charge were
to be reduced by only RM6/kWh, Tenaga’s FY13F net profit will increase by 3%
compared with 66% if the capacity charge were to be reduced by 80%.
- But there is a possibility that a large portion of the cost savings could be used to offset the
higher natural gas costs arising from the commencement of the 530mmscfd Lekas regassification
plant in September this year. Hence, we maintain FY12F-14F earnings, pending
Tenaga’s 3QFY12 results announcement this Thursday 19 July, which we expect to
be in line with expectations due to lower coal prices and stabilising gas
supply.
- We remain positive on Tenaga due to:- (1) Normalised natural gas supply from the
Lekas regassification plant in Malacca by September this year providing clearer
earnings visibility, (2) Falling global coal prices positively transforming the
company’s cost structure, (3) Pending the upcoming elections, there is a
possibility that Petronas and the government will continue to bear the higher
liquefied natural gas costs from the Malacca regassification plant, which could mitigate further fuel cost
pressures, and (4) New power purchase agreements in an open tender environment,
with Tenaga as the bidder and sole off-taker, will further drive its fixed
power purchase costs lower.
- 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 FY13F PE of 10x compared with
the stock’s three-year average band of 10x-16x.
Source: AmeSecurities
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