- We reiterate our BUY call on Tenaga Nasional (Tenaga), with an unchanged DCF-derived fair value of RM7.95/share, which implies an FY13F PE of 12x and a P/BV of 1.2x.
- Business Times reported today that the 1Malaysia Development Bhd-Hyundai Engineering & Construction consortium may win the tender to build and own the new combined cycle Gas Turbine (CCGT) of 1,000-1,400MW (megawatts) in Prai. The newspaper reported that 1MDB submitted the lowest bid for the tender, the result of which may be revealed later today. We understand that the results of the tender for the extension of the first generation power purchase agreements could also be announced today.
- Recall that the other bidders for the tender to build the power plant, which is expected to be ready for commercial operations by March 2016, included Pendekar Power Sdn Bhd (which has been taken over by 1MDB from Powertek), Sime Darby, Tenaga Nasional, Mastika Lagenda Sdn Bhd (also being taken over by 1MDB from Genting), YTL Power International Bhd-Marubeni Corp, and MMC Corp Bhd-Mitsubishi Corp venture.
- We are neutral on this development as the winner of the bid could end up with a project internal rate of return of 7%-8%, compared with the third generation Tanjong Bin’s 12%. Compared to the previous generation’s power plant, we estimate that the fixed capacity charge could be reduced by 30%-40%. This is a positive long-term development for Tenaga with the lower costs beginning to materialise in FY16F when the plant is completed. Hence, we maintain FY12F-FY14F net profits.
- Near-term catalysts for Tenaga’s re-rating stem from:- (1) Stronger 4QFY12 earnings, driven by a drop in Newcastle coal cost by 15% QoQ or US$16/tonne and 4% QoQ increase in natural gas supply to 1,000mmscfd; (2) Tenaga’s stronger earnings outlook will be underpinned by the likely continued cost-sharing formula among Tenaga, Petronas and the government for the additional distillate and oil costs arising from the shortfall in natural gas below the 1,250mmscfd threshold; and (3) The likely delay in the commencement of the Malacca LNG regassification terminal until December this year will mean that the prolonged cost-sharing mechanism with Petronas and the government will mitigate the group’s fuel costs.
- 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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