Tenaga Nasional Bhd (Dec 5, RM 5.72)
Maintain buy with fair value of RM5.47: We reiterate our “buy” call on Tenaga Nasional Bhd (TNB) with an unchanged discounted cash flow-derived fair value of RM6.57 per share, which implies a CY12F price earnings ratio (PER) of 12 times.
We maintain FY12F to FY14F earnings which incorporate the one-off RM2 billion fuel relief provided for the natural gas shortage and assumption of normalised fuel costs. Recall that TNB had received a letter last week from the government that provides a fuel cost sharing mechanism to address the current increased cost borne by the group due to the gas shortage.
TNB has signed a power purchase agreement (PPA) with Malakoff’s wholly-owned Tanjung Bin Energy Sdn Bhd to design, construct, own, operate and maintain an additional 1,000MW plant to the existing 2,100MW plant in Tanjung Bin, Johor.
The PPA covers the purchase of daily available capacity and despatch of net electrical output for 25 years from the commercial operation date, which is expected on March 1, 2016. The actual tariff rate has not been revealed at this juncture.
TNB’s wholly-owned TNB Fuel Services Sdn Bhd has also signed a coal supply and transport agreement to sell coal to Tanjung Bin Energy for its new coal plant.
We understand that the equity internal rate of return (IRR) of this new Tanjung Bin power plant is 8.5%. Given that the project IRR is at 5%, we estimate that the new plant will be funded on an equity-to-debt ratio of 20:80.
As these IRRs are much lower than the third generation power plants, around 11% to 12%, we expect TNB’s cost efficiencies to gradually improve over the next five years.
Together with TNB’s additional 1,000MW block at its coal-fired Janamanjung plant in Lumut, the additional capacities are clearly needed by 2016 to raise Peninsular Malaysia’s power reserve margin to over 20%.
TNB’s power generation mix currently has 45% coal, which is expected to reach over 50% in 2016. But we expect TNB’s strategy to return to natural gas fired plants given Petroliam Nasional Bhd’s upcoming re-gassification plants, initially in Malacca while the next two will be in Pengerang, Johor and Lumut, Perak.
The stock currently trades at a price-to-book value (P/BV) of one time, at the lower range of one to 2.6 times over the past five years. Earnings-wise, TNB offers an attractive CY12F PER of 10 times compared with the stock’s three-year average band of 11 times and 16 times. — AmResearch, Dec 5
This article appeared in The Edge Financial Daily, December 6, 2011.
Maintain buy with fair value of RM5.47: We reiterate our “buy” call on Tenaga Nasional Bhd (TNB) with an unchanged discounted cash flow-derived fair value of RM6.57 per share, which implies a CY12F price earnings ratio (PER) of 12 times.
We maintain FY12F to FY14F earnings which incorporate the one-off RM2 billion fuel relief provided for the natural gas shortage and assumption of normalised fuel costs. Recall that TNB had received a letter last week from the government that provides a fuel cost sharing mechanism to address the current increased cost borne by the group due to the gas shortage.
TNB has signed a power purchase agreement (PPA) with Malakoff’s wholly-owned Tanjung Bin Energy Sdn Bhd to design, construct, own, operate and maintain an additional 1,000MW plant to the existing 2,100MW plant in Tanjung Bin, Johor.
The PPA covers the purchase of daily available capacity and despatch of net electrical output for 25 years from the commercial operation date, which is expected on March 1, 2016. The actual tariff rate has not been revealed at this juncture.
TNB’s wholly-owned TNB Fuel Services Sdn Bhd has also signed a coal supply and transport agreement to sell coal to Tanjung Bin Energy for its new coal plant.
We understand that the equity internal rate of return (IRR) of this new Tanjung Bin power plant is 8.5%. Given that the project IRR is at 5%, we estimate that the new plant will be funded on an equity-to-debt ratio of 20:80.
As these IRRs are much lower than the third generation power plants, around 11% to 12%, we expect TNB’s cost efficiencies to gradually improve over the next five years.
Together with TNB’s additional 1,000MW block at its coal-fired Janamanjung plant in Lumut, the additional capacities are clearly needed by 2016 to raise Peninsular Malaysia’s power reserve margin to over 20%.
TNB’s power generation mix currently has 45% coal, which is expected to reach over 50% in 2016. But we expect TNB’s strategy to return to natural gas fired plants given Petroliam Nasional Bhd’s upcoming re-gassification plants, initially in Malacca while the next two will be in Pengerang, Johor and Lumut, Perak.
The stock currently trades at a price-to-book value (P/BV) of one time, at the lower range of one to 2.6 times over the past five years. Earnings-wise, TNB offers an attractive CY12F PER of 10 times compared with the stock’s three-year average band of 11 times and 16 times. — AmResearch, Dec 5
This article appeared in The Edge Financial Daily, December 6, 2011.
