Utilities sector
Maintain neutral: The Energy Commission has unveiled a list of 47 prospective bidders, comprising local and foreign firms, for the development of new combined-cycle power plants in the country. This follows the commission’s recent issuance of “notice for expression of interest” for a total plant-up of 4,500MW of new generation capacity in Peninsular Malaysia.
Among the local parties bidding for the combined-cycle power projects are Tenaga Nasional Bhd (TNB), Tanjong Energy Holdings Sdn Bhd, YTL Power International Bhd (YTLP), Petroliam Nasional Bhd (Petronas), Sime Darby Energy Sdn Bhd, Malakoff Corp Bhd and Ranhill Power Sdn Bhd. The foreign parties include Samsung C&T Corp, Marubeni Corp, Siemens Project Ventures, Mitsubishi Corp, Mitsui & Co, Daewoo International Corp and Korea Electric Power Corp. In line with the government’s policy, foreign participation in a consortium is capped at 49%.
The next stage is for a pre-qualification of interested parties — with the pre-q document to be issued by early February this year. We are positive on the level of transparency attempted by the regulator to provide a level playing field and award contracts to the least-cost unit generator. From a recent meeting with the regulator, we understand that the first phase of plant-up (from a total of 4,500MW of generation capacity) will include two times 700MW gas-fired power plants slated for commercial operation by 2016/17. Importantly, the two times 700MW power plant to be awarded by the Energy Commission will be located at a brownfield site already identified by the regulators. We believe the potential sites are Prai in Penang, Pasir Gudang in Johor and Klang, Selangor. All these sites are currently owned by TNB with existing gas-fired power plants in operation (YTLP currently operates in Pasir Gudang). We also understand that while TNB is an interested bidder in the 4,500MW plant-up exercise, in the event it does not emerge as the least-cost producer, a land lease agreement will be extended to the winner of the new power plant.
All in, we see opportunities for the likes of YTLP, TNB, Tanjong plc (unlisted) and Malakoff (51%-owned by MMC Corp Bhd) to increase their existing generation capacity. Due to the nature of the competitive bidding currently undertaken by the Energy Commission, project internal rates of return will likely be at a level similar to overseas projects (low teens) and therefore, the incremental impact on net asset values will be far less than past projects, albeit being positive.
Maintain “neutral” on the sector. The sector as a whole trades at 16.1 times CY12 earnings — above market valuations. This, we believe, fairly reflects the sector’s liquidity and large market capitalisation representation. For yield exposure, we like YTLP. TNB (“reduce”, target price: RM6.12) may see choppy days ahead (until after the general election) in the absence of outright fuel volume and price commitment from the regulator. — Affin IB Research, Jan 30
This article appeared in The Edge Financial Daily, January 31, 2012.
Maintain neutral: The Energy Commission has unveiled a list of 47 prospective bidders, comprising local and foreign firms, for the development of new combined-cycle power plants in the country. This follows the commission’s recent issuance of “notice for expression of interest” for a total plant-up of 4,500MW of new generation capacity in Peninsular Malaysia.
Among the local parties bidding for the combined-cycle power projects are Tenaga Nasional Bhd (TNB), Tanjong Energy Holdings Sdn Bhd, YTL Power International Bhd (YTLP), Petroliam Nasional Bhd (Petronas), Sime Darby Energy Sdn Bhd, Malakoff Corp Bhd and Ranhill Power Sdn Bhd. The foreign parties include Samsung C&T Corp, Marubeni Corp, Siemens Project Ventures, Mitsubishi Corp, Mitsui & Co, Daewoo International Corp and Korea Electric Power Corp. In line with the government’s policy, foreign participation in a consortium is capped at 49%.
The next stage is for a pre-qualification of interested parties — with the pre-q document to be issued by early February this year. We are positive on the level of transparency attempted by the regulator to provide a level playing field and award contracts to the least-cost unit generator. From a recent meeting with the regulator, we understand that the first phase of plant-up (from a total of 4,500MW of generation capacity) will include two times 700MW gas-fired power plants slated for commercial operation by 2016/17. Importantly, the two times 700MW power plant to be awarded by the Energy Commission will be located at a brownfield site already identified by the regulators. We believe the potential sites are Prai in Penang, Pasir Gudang in Johor and Klang, Selangor. All these sites are currently owned by TNB with existing gas-fired power plants in operation (YTLP currently operates in Pasir Gudang). We also understand that while TNB is an interested bidder in the 4,500MW plant-up exercise, in the event it does not emerge as the least-cost producer, a land lease agreement will be extended to the winner of the new power plant.
All in, we see opportunities for the likes of YTLP, TNB, Tanjong plc (unlisted) and Malakoff (51%-owned by MMC Corp Bhd) to increase their existing generation capacity. Due to the nature of the competitive bidding currently undertaken by the Energy Commission, project internal rates of return will likely be at a level similar to overseas projects (low teens) and therefore, the incremental impact on net asset values will be far less than past projects, albeit being positive.
Maintain “neutral” on the sector. The sector as a whole trades at 16.1 times CY12 earnings — above market valuations. This, we believe, fairly reflects the sector’s liquidity and large market capitalisation representation. For yield exposure, we like YTLP. TNB (“reduce”, target price: RM6.12) may see choppy days ahead (until after the general election) in the absence of outright fuel volume and price commitment from the regulator. — Affin IB Research, Jan 30
This article appeared in The Edge Financial Daily, January 31, 2012.
