Tenaga Nasional - RM10bil capex could increase with new coal plant-ups

-  We reiterate our BUY call on Tenaga Nasional (Tenaga), with an unchanged DCF-derived fair value of RM8.15/share, which implies an FY13F PE of 11x and a P/BV of 1.3x.

-  Newspapers reported today that Tenaga’s chairman Tan Sri Leo Moggie as saying that the group will be investing in capital expenditures worth RM10bil to build new power plants over the next 5 years. This is not a surprise because the new 1,000MW extension to the Janamanjung power station costs RM5bil while the group will spend another RM2.5bil for the 1,070MW gas-fired Prai power plant and RM3.5bil for two hydroelectric plants at Hulu Terengganu and Ulu Jerai in Pahang, which have a combined capacity of 622MW. These will add 12% to the group’s current capacity of 21,800MW.

-  But the capex programme currently does not include the new coal-fired power plants with a combined capacity of 3,000MW which the Energy Commission (EC) has opened for application of bidding documents, with the closing date on 4 January 2013. Recall that the first 1,000MW power plant will be built on a fast track basis with operation expected to commence in October 2017. Hence, it is likely to be on an existing power plant, such as at Tenaga’s Janamanjung or MMC Corp’s Tanjung Bin stations. The second 2,000MW plant, which commences operation in 2018/2019, could possibly be built on a new location.

-  As Tenaga will also be bidding for the two new coal-fired plants, we are positive on this development.  As mentioned in our past reports, Tenaga, which is the sole off-taker of the electricity generated, remains the most likely candidate to build the new power plants as the value proposition for the group does not need to generate a positive net present value- potentially lowering the group’s future cost profile. 

-  Assuming a cost of US$1.6mil/MW (comparable to the new Janamanjung block), the additional 3,000MW coal-fired plants, should Tenaga secure the tenders, could cost an additional RM14bil to the group’s announced capex plans. But given Tenaga’s free cash flow of RM7bil-RM9bil annually and the group’s current net gearing of 40%, we estimate that the group’s net gearing is likely to be kept within the 60% threshold, which remains comfortable compared with the group’s past peak of 2x back in 2003.

-  The stock currently trades at a P/BV of 1.1x, at the lower end of the 1x-2.6x range over the past 5 years. Tenaga also offers an attractive FY13F PE of 10x, compared with the stock’s three-year average band of 9x-16x.

Source: AmeSecurities