Tuesday, 22 January 2013

Tenaga Nasional - Kuwait, Here We Come!


THE BUZZ  

Tenaga (TNB) yesterday announced that its subsidiary, TNB Repair and Maintenance SB (REMACO),  together  with  its  joint  venture  partner  Kharafi  National  of  Kuwait  had  been issued a letter of award by Kuwait’s Central Tender Committee for the operation and maintenance of the Shuaiba North co-generation plant in Kuwait.


OUR TAKE 

More  details  on  the  agreement. According to TNB’s official Bursa release, the tenure of the  contract  is  for seven  years  and  valued  at  approximately  RM958m.  The  co-generation plant, owned by Kuwait’s Ministry of  Electricity  and  Water,  is  located  within  the  Shuaiba Industrial  Authority  Area  some  40km  away  from  Kuwait  city.  Commissioned  in  2010,  the plant currently has an installed energy capacity of 780MW as well as the ability to produce 45m gallons of distilled water per day. 

Within  expectations.  We  deem  the  announcement  within  our  expectations  as  TNB’s management  had  previously  made  known  its  intention  to  grow  the group’s  non-regulated income  stream  from  RM2.3bn  in  FY12  to  the  in-house  target  of  RM5bn  by  2015.  One  of the  growth  drivers  would  be  its  repair  and  maintenance  business,  which  contributed RM543m to the group’s consolidated topline in FY12. While TNB’s effective stake in the JV as  well  as  the  potential  contribution  to  its  earnings  over  the  next  seven  years  remains unknown for now, we believe management would likely share more details on this venture in its upcoming 1QFY13 results briefing scheduled on 23 Jan. 
 
REMACO  to  expand  further.  With  this  award  in  the  bag, we expect TNB REMACO’s management  to  work  proactively  towards  finalizing  some  of  its  other  outstanding partnership  agreements.  These  include  potential  co-operation  and  partnerships  with  the Defense Housing Authority in Pakistan, Sawary Energy in Saudi Arabia, Mashor Group in Brunei,  Crescent  Power  and  Wijaya  Karya  in  Indonesia,  as  well  as  Dyna  Synegy  in Myanmar. Some of the operations and maintenance projects that TNB is looking at include a  2x750MW  plant  in  Dairut,  Egypt  as  well  as  a  2x600MW  plant  in  Duyen  Hai,  Vietnam. While the contribution to earnings from TNB’s core operations in Malaysia is unlikely to be significant  in  the  near  term,  we  foresee  further  opportunities  to  be  explored  within  this segment  as  the  group  capitalizes  on  its  expertise  and  its  over  30  years  of  experience  in power plant repair and maintenance.
Prai remains on track. On a side note, TNB in a separate Bursa release announced that it has awarded the engineering, procurement, and construction contract for its 1,071MW Prai power  plant  to  Samsung  Engineering.  Meanwhile,  it  has  also  entered  into  a  20-year operation  and  maintenance  agreement  with  Siemens  AG  for  the  same  plant.  This comes three months after the group was first awarded the power plant by the Energy Commission in mid-Oct 2012 and we are optimistic that progress seems to remain largely on track for full completion by end-2015.

BUY. All in, we maintain our BUY call on TNB with our FV unchanged at RM8.90, based on  15x  FY13  PE.  We  see  positives  in  its  ambitions  to  grow  its  non-regulated  income stream in the long run. At the same time, we are glad to know that its proposed Prai power plant  remains  on  schedule.  As  for  its  upcoming  1QFY13  results  release,  we  believe  the numbers  are  likely  to  be  within  our  expectations  or  could  potentially  spring  positive surprises amidst the continued weakness in coal prices.
Source: OSK

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