AmWatch - Tenaga Nasional : HoA for new Johor power plant, 25 Jul 2014

STOCK FOCUS OF THE DAY

Tenaga Nasional : HoA for new Johor power plant           Buy

We maintain BUY on Tenaga Nasional (Tenaga) with an unchanged DCF-derived fair value of RM15.00/share, which implies an FY15F PE of 14x and a P/BV of 2.2x.

Tenaga has signed a non-binding HoA for the principal terms of the proposed joint venture with SIPP Energy Sdn Bhd to build, own, and operate a power plant with a capacity of 1000MW-1400MW on Tenaga’s available land in Pasir Gudang, Johor. Recall that back in May this year, the EC has decided to offer a conditional award for this proposed power plant (via a direct negotiation to SIPP Energy with participations by Tenaga and YTL Power International.

In contrast to the competitive tenders conducted since 2012, the EC stated that the policy change stemmed from a need to fast-track this project following the power blackout in five states in Peninsular Malaysia earlier this year. But following the negative publicity on the award, YTL Power has opted to withdraw from this project. As Tenaga needed to reply to the EC’s offer by today, we believe that this announcement was to provide additional time for deliberation.

There are three conditions under the EC’s offer for Project 4A: (i) the levelised tariff must be comparable to the 1,071MW Prai combined cycle plant awarded back in 2012; (ii) the engineering, procurement, and construction provider must be selected through a competitive bid for a proven gas turbine technology; and (iii) technical and commercial proposals have to be approved by EC.

We believe that there is a strong likelihood that Tenaga will end up as a substantial equity partner in this project. We remain convinced that Tenaga’s earnings revision cycle from the tariff hike commencing in 2QFY14 will continue to propel its re-rating focus forward. The stock trades at a decent P/BV of 1.8x, which is within the adjusted 1.1x-2.0x band over the past 5 years.

Others :

Yinson Holdings : Minimal impact from sale of FPSO Petroleo Nautipa     Buy

Malaysia Airport : Klia2 costs drag earnings           Hold

Public Bank : Assurance from proactive stance  Hold

QUICK TAKE

CIMB Group Holdings : Higher costs for CIMB Niaga in 2QFY14     Hold

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