Tenaga Nasional : Tadmax deal: Of risk & opportunity BUY

STOCK FOCUS OF THE DAY

Tenaga Nasional : Tadmax deal: Of risk & opportunity     BUY

Maintain TNB as a Buy but with a higher fair value of RM19.20. We continue to like the stock as the group is a key beneficiary (stable earnings and cash flow) of the reform measures implemented by the government in the power sector, and potential upside to dividend payouts going forward. TNB confirmed on Wednesday that it has received a letter from the Energy Commission in relation to its participation, via a consortium with Tadmax Resources Bhd, in the 1,000 MW CCGT power plant in Pulau Indah, Selangor.

Although the direct award of the project is less than ideal, we note that it will only be operational in 2023 and therefore, would not add into unnecessary reserve margin in the medium term. At this juncture, financial details are still sketchy. It is also not clear whether EC will continue to impose the 34.7 sen/kWh levelised tariff as the benchmark, given the substantial depreciation of Ringgit.

These issues may risk some delay to the project as what SIPP Energy going through. However, if the deal materialises, naturally, we would expect TNB to take the lead, given its deep pocket (and ability to raise debt at a cheaper cost) and technical know-how. Recall that for Project 4A (1,400 MW CCGT plant), the principal owner (SIPP Energy) will end up with only a minority stake. We have adjusted earnings forecasts downward by 4-5% after taking into account the potential demand slowdown in 4Q16 and other operating cost factors. Fair value however was adjusted higher to RM19.20 (WACC=8.9%, g= 3%) from RM17.30 previously. Note that we have imputed 2% base tariff hike in 2018 (the beginning of the 2nd regulatory period). TNB received 2.69% base tariff hike for the first regulatory period (2015 - 2017).  

Others :

Axiata Group : Unlimited calls for RISDA members            BUY

Malaysia Building Society : Conservative provisioning to continue into FY17          HOLD

UMW Holdings : Key challenges remain HOLD

QUICK TAKE

MRCB  : Fixes 2nd tranche placement price at RM1.13/share       BUY

NEWS HIGHLIGHTS

Media Prima : Earnings dragged down by lower revenue, higher expenses

AirAsia : Relocates operations at Soekarno-Hatta International Airport

REIT Sector : Sunway REIT 4Q net property income grows 6.8%

Oil and Gas Sector : Gas Malaysia Q2 pretax profit rises to RM50mil