Sunway Reit : 9MFY17 within expectations HOLD

STOCK FOCUS OF THE DAY

Tenaga Nasional : Acquiring 51% in SPG BUY

Tenaga Nasional (TNB) announced a share sale and purchase agreement (SSPA) with SIPP Energy and a shareholders’ agreement for a 51% shareholding in Southern Power Generation (SPG). It was for a token consideration of RM51. SPG is a special purpose vehicle company appointed to construct, own, maintain and operate the 2x720MW combined cycle gas turbine power plant in Pasir Gudang, Johor or better known as Track 4A. Recall that SIPP Energy was initially awarded on a direct basis to accelerate Track 4A’s completion. However, to stem further delays, the Energy Commission (EC) has intervened. It was initially slated to be operational by end-2018. With the introduction of TNB’s expertise and financial capability, the EC now expects Track 4A to be completed by July 2020 instead.

We are positive over the acquisition as it is earnings accretive to TNB. The token consideration dispels possible disadvantageous valuations. While the levelised tariff went undisclosed, the tenure of the PPA will span 21 years, from 2020 to 2041. Meanwhile, TNB estimates the power plant will cost approximately RM4.7bil. Our estimates suggest annual earnings of RM470mil-RM550mil based on an 8-10% project IRR. Assuming an 8% WACC for generative assets above the regulatory WACC of 7.5% and a 10% project IRR, the NPV impact to TNB is RM400mil or 7sen/share once adjusted for its stake in SPG. We are positive over the development, as TNB proves it engages only economically viable projects. Outlook remains promising with its resilient earnings visibility and acquisition fuelled growth. Maintain BUY with a DCF-based FV of RM18.50 (from RM18.43) (WACC: 7.7% TG: 2.0%). Valuations remain compelling at 10.7x CY17 PER with dividend yields of 3.7%-4.2% for FY17F-FY19F.

Others :

Sunway Reit : 9MFY17 within expectations           HOLD

QUICK TAKE

Banking Sector : Mildly positive for banks on removal of reserve fund requirement          OVERWEIGHT

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ECONOMIC HIGHLIGHTS

US : June rate hike on the table

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