• Tenaga Nasional (TNB) has received a letter of intent from the Ministry of Energy and Natural Resources for the development of a 2,100MW combined-cycle gas power plant with hydrogen-fired combustion capability in Kapar, Selangor.

• The plant will be constructed on TNB’s land, north of the Sultan Salahuddin Abdul Aziz Power Station.

• The development of the project will be carried out by TNB in collaboration with Widad Business Group.

• We positively view this development, which would help TNB achieve its target of net zero carbon emissions by FY50F. TNB would be able to avoid carbon emissions of almost 4.7mil tonnes per year with the new gas power plant in Kapar.

• The new power plant in Kapar is expected to cost RM9.5bil in total. We believe that TNB would be issuing bonds or sukuk to finance the cost of the project.

• The new power plant is estimated to record an EBIT of RM400mil per year. This is 4% of TNB’s FY23F EBIT of RM9.6bil. However, we are keeping our earnings forecast for TNB for now as the new power plant would be commencing operations only in FY31F.

• We maintain BUY on TNB with a fair value of RM11.80/share. TNB is currently trading at a FY23F PE of 9x, which is lower than its 2-year average of 15x.

Source: AmInvest Research - 25 Oct 2022