• The Edge Financial Daily reported that the government has decided to cancel four independent power producers’ (IPP) licences for failure to adhere to conditions stipulated in the offer letters. We do not know the details of the conditions, which were not met.

• Minister of Energy, Science, Technology, Environment and Climate Change Yeo Bee Yin said that the IPP projects were awarded via direct negotiations.

• Yeo said that the cancellation of the four IPPs would optimise capacity payments for electric supply. With the cancellations, the government has achieved savings of RM1.26bil for the consumers. Yeo added that 30% of electric bill payments were in respect of capacity payments for the IPPs currently.

• The four IPPs which were cancelled were Malakoff Corporationand Tenaga Nasional’s 700MW gas powered plant in Kapar, Aman Majestic Sdn Bhd and Tenaga Nasional’s1,400MW plant in Paka, Terengganu, Sabah Development Energy (Sandakan) Sdn Bhd and SM Hydro Energy’s hydropower plant at the Palm Oil Industrial Cluster and solar power quota of 400MW to Edra Power Holdings for the utilisation of a solar power plant.

• There is no earnings impact from the cancellation of the IPPs on Malakoff and Tenaga Nasional as the IPPs were under planning stages and the power purchase agreements(PPAs) have not been signed yet.

• We understand from Malakoff that the 700MW Kapar power plant was only a proposal, which was supposed to repower the gas turbine generating facility (220MW) of the existing Kapar power plant when the PPA expires in July 2019.

• The PPAs of the other three generating facilities of Kapar power plant expire in year 2029.

• Currently, Tenaga Nasional has domestic power generating capacity of 12,232.4MW in total while Malakoff has effective power generating capacity of 6,346MW in Malaysia.

• Maintain BUY on Tenaga Nasional with a fair value of RM17.25/share and HOLD on Malakoff Corporation with a fair value of RM0.89/share.

Source: AmInvest Research - 26 Oct 2018