• Tenaga Nasional (TNB) has proposed to acquire a 5% stake in Jimah Energy Ventures (JEV) and 5% Class B notes issued by Special Power Vehicle Bhd (set up to finance the construction of the JEV power plants) for RM80mil from Menteri Besar Negeri Sembilan (Incorporation).
• Currently, TNB owns a 20% stake in JEV (before the proposed acquisition of 5%) and 20% of the Class B notes.
• Edra Power owns 75% of JEV while Menteri Besar Negeri Sembilan owns 5%.
• Edra Power is a subsidiary of CGN (China General Nuclear) Power Corporation.
• After the proposed acquisition, Menteri Besar Negeri Sembilan would no longer have a stake in JEV. TNB’s stake in JEV would increase to 25% from 20%.
• JEV operates 1,400MW coal power plants in Port Dickson, Negeri Sembilan. JEV commissioned its first unit of 700MW in January 2009.
• We believe that earnings contribution from the additional stake of 5% in JEV is minimal.
• Assuming an earnings yield of 5%, the investment of RM80mil would generate a profit of RM4mil per year. We estimate TNB’s normalised net profit (excluding forex and impairments) to be RM3.9bil in FY20E.
• As TNB would eventually own 25% of JEV, earnings from JEV would be recognised under share of net profit in associates.
• The purchase consideration of RM80mil was derived based on an external advisor’s valuation of the 5% stake in JEV and internal valuation of the discounted cash flows of the Class B notes.
• We maintain BUY on TNB with a fair value of RM13.95/share.

Source: AmInvest Research - 30 Jul 2020