Tenaga Nasional - Govt to liberalise power industry

Date: 17/09/2019

Source  :  AmInvest
Stock  :  TENAGA       Price Target  :  15.80      |      Price Call  :  BUY
        Last Price  :  10.08      |      Upside/Downside  :  +5.72 (56.75%)

  • Energy, Technology, Science, Climate Change and Environment Minister Yeo Bee Yin gave some details on the 10-year master plan on energy reform last Friday.
  • Some of the salient details include:

1. Enable third-party access for transmission and distribution (T&D). This means that Tenaga Nasional will no longer be the sole T&D player in the industry;

2. IPPs can source coal and gas from third parties instead of getting the supply from Tenaga Nasional. Any cost savings will be shared between end users and the IPPs although the ratio and exact mechanism have yet to be finalised;

3. Future PPAs will only provide capacity payments but no energy payments. Future PPAs will also have a shorter tenure instead of 21 years;

4. The retail market will be opened up. The pilot opening of the retail market will take place in 2Q2021 after the roll-out of the retail regulatory framework.

  • For now, the single buyer structure will be in place until Tenaga’s T&D assets are opened for third-party access for non-renewable power producers.
  • There are several implications from this development:
  • First, this development paves the way for Tenaga’s T&D assets to be listed. This would be a way for third parties to gain access to the T&D assets. The listing of the T&D assets would allow Tenaga to monetise and unlock the value of its assets. Tenaga’s T&D and international assets achieved an EBIT of RM4.9bil in FY18 vs. the generation segment’s EBIT of RM1.6bil. Under Regulatory Period 2, the T&D assets have an asset base of RM50.0bil in 2018. In Australia, some of the T&D networks are owned by the private sector and not the state governments. For example, SP AusNet in Victoria is 51%-owned by Singapore Power International. Electranet in South Australia is jointly owned by the Queensland State Government, YTL Power and Hastings Utility Trust.
  • Second, we do not think that the liberalisation of the retail market would have a significant impact on Tenaga. We believe that Tenaga would have the financial strength to compete in this segment. Tenaga’s retail segment achieved an EBIT of RM0.2bil in FY18 and has a net carrying value of RM1.84bil as at end-Dec 2018.
  • The opening up of the retail market in the power industry would allow consumers to choose their energy providers. This could result in cheaper electricity bills for the consumers.
  • We maintain BUY on Tenaga Nasional with an unchanged fair value of RM15.80/share.

Source: AmInvest Research - 17 Sept 2019

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