News Genting has finally announced the disposal of
its first generation Malaysian IPP, Genting Sanyen to 1Malaysia Development Bhd
(1MDB) after it was speculated in the
Business Times last Thursday (refer to our report dated 10 Aug 2012).
1MDB is paying 1)
RM2.34b for the 97.7% equity stake in Mastika Lagenda Sdn Bhd, which owns 75%
of Genting Sanyen, and 2) RM38.8m for the lands.
The PPA for this IPP
will expire in Nov 2015. The IPP had on 30 Jul 2012 submitted a competitive bid
to Energy Commission for a 10-year PPA extension.
Comments Although the disposal price of RM2.34b is
lower than the RM3.0b-RM3.5b quoted in the press, it is still a good price in
our view.
In our SOP, we value
the Malaysian asset at RM529m. We believe our valuation is fair given that
Genting will be making RM1.9b disposal gains from this deal, implying a book
value of c.RM440m for the asset.
The power asset
disposal is expected to be completed by this month while the land disposal is
set to complete within 3 years henceforth.
In summary, we are
positive on the deal as besides the RM1.9b disposal gain, it will also allow
the group to better focus on its core gaming operations.
We believe the group
will use some of the RM1.9b disposal gains for its new USD1.0b greenfield 660MW
coal-fired power plant in Indonesia.
Outlook The
disposal of this IPP will reduce GENTING’s FY13E earnings by c.4% but will add RM0.51/SOP
share to our valuation.
Forecast No
changes to our estimates.
Rating MAINTAIN OUTPERFORM
Valuation We
are retaining our target price of RM11.69/share, based on a 10% holding company
discount to its SOP, while awaiting the company’s 2Q12 results to be released
at this month-end.
Risks Risks
to our call are 1) poor luck factor and 2) a substantial decline in CPO prices.
Source: Kenanga
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