• Tenaga Nasional (TNB) has acquired a 5% controlling stake in Vortex Solar Investments for £11mil. This will increase TNB’s equity interest in Vortex Solar to 55% from 50%.

• Vortex Solar is one of the largest solar platforms in the UK comprising 24 operational solar farms with a total combined capacity of 365MW.

• TNB acquired its 50% stake in Vortex Solar for £86mil in 2017. This valued Vortex at £172mil or £.47mil per MW.

• At TNB’s current purchase price of £11mil for a 5% stake, Vortex is valued at £220mil or £0.6mil per MW.

• As this is just an additional 5% stake, we do not expect the incremental earnings contribution from Vortex to be significant to TNB.

• Vortex recorded an EBITDA of £18.1mil in 1HFY20 compared with £20.5mil in 1HFY19. EBITDA margin was 84% in 1HFY20.

• We believe that TNB is slowly increasing its exposure to the renewable energy segment. In March 2020, TNB acquired the remaining 20% stake in the wind assets in the UK for £18.6mil.

• Coal accounted for 66.0% of the industry’s generation mix in 1HFY20 while gas accounted for another 30.5%. Renewable energy (solar and hydro) accounted for only 3.5% of the generation mix in 1HFY20.

• We maintain BUY on TNB with a fair value of RM13.95/share.

Source: AmInvest Research - 18 Sept 2020