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Tenaga Nasional Bhd : likely to pay a fair price for Project 3B

06/30/2015 | 01:22pm US/Eastern

Tenaga Nasional Bhd (TNB) is "likely to pay a fair price" for assuming responsibility of the delayed 2,000MW coal-fired power plant in Port Dickson, says Alliance DBS Research.

The research firm in a report on Tuesday said that while there is no disclosure on the purchase consideration to be paid by the utility giant to take over the 70% stake owned by 1Malaysia Development Bhd (1MDB), "it is unlikely to be substantial given the minimal works (like land clearing and environmental studies) done.

"Based on our back-of-envelope calculation, the project could contribute at least 25sen to our discounted cash flow valuation," the firm said, adding that the revised tariff at 26.67sen/ kWh (from 25.33sen/ kWh previously) also seemed fair.

TNB's share price has come under heavy selling pressure lately over concerns that it may be overpaying for the 70% stake in Jimah East Power Sdn Bhd (JEP), the developer of the 2,000MW coal-fired power plant dubbed Project 3B.

The utility giant announced yesterday that it and Mitsui & Co Ltd have received an additional addendum to the letter of award dated June 3, 2014 for the coal-fired power plant dubbed Project 3B from the Energy Commission (EC).

In the exchange filing, TNB said the regulator gave its approval for 1MDB to transfer its 70% stake in JEP to it, while Mitsui & Co Ltd will retain its 30% stake. JEP was established by the 1MDB-Mitsui Consortium back in 2014 to undertake the development of Project 3B in Jimah, Port Dickson.

The terms and conditions of the award by EC, among others, include the levelised tariff fixed at 26.67sen per kWh as proposed jointly by TNB and Mitsui and the net capacity fixed at 2×1,000MW and its efficiency is 39.5% at full load. In addition, JEP will be jointly owned by TNB and Mitsui, and it can enter into the project documents and fulfil the conditions precedent to their effectiveness.

The scheduled commercial operation of the power plants has been postponed to June 2019 from the October 2018 planned earlier.

The TNB-Mitsui consortium has seven days to accept the terms of the addendum.

Meanwhile, Public Invest Research, thinks there is a possibility TNB might consider increasing its 20% stake in Jimah Power Station, which is situated beside Project 3B. Though JEP was originally designed as a stand-alone power plant, it would make economic sense to share the operating facilities for both plants, the research firm noted. Jimah Power Station is a 1400MW coal-fired power plant with its power purchase agreement expiring in December 2033. It was initially owned by the Negeri Sembilan royal family and TNB with 80:20 percentage shareholding. In 2013, 1MDB acquired a 75% share in Jimah Power Station from the royal family for RM1.2 billion.

Analysts said that following the recent sell down from a high of RM14.30 in May to RM12.60 yesterday, the stock is currently trading at an undemanding valuation of 10x price earnings based on FY2015 and FY12016 forecast earnings. This is below its 3-year average of a price earnings ratio of 15 times,

At 3.00pm its shares are marginally up by 0.16% to RM12.64. At this level, its dividend yields are also decent at 2.7%, said analysts.


(c) 2015 SANA Provided by SyndiGate Media Inc. (Syndigate.info)., source Middle East & North African Newspapers

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