- 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
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