Tenaga Nasional (TNB) via its wholly-owned subsidiary TNB Power Generation Sdn Bhd (TNB Genco) announced that it has received a letter of notification from the Ministry of Energy and Natural Resources to develop a hydroelectric power plant with a capacity of 300MW in Gua Musang, Kelantan. To recap, this project is part of the strategic national hydroelectric project that complements TNB’s aim in supporting the Government’s ambition to increase the share of renewable energy in its installed capacity to 31% in 2025 and 40% in 2035 under its power generation plan. While the project is expected to be earnings accretive, the construction is estimated to take five years. As such, the expected scheduled commercial operation date (SCOD) is June 1, 2027 which is beyond our forecast horizon. All told, we make no changes to our earnings estimates at this juncture but affirm our Outperform call, with DCF-derived TP unchanged at RM12.42.

• The 300MW hydropower plant will be built in Mukim Ulu Nenggiri, Jajahan Gua Musang, Kelantan and is one of the two large-scale hydro projects commissioned by Suruhanjaya Tenaga (ST) in Peninsular Malaysia. The other is the Tekai plant which has 163MW commissioned. All in, we understand ST had committed, in principle, to the development of twelve generation projects between 2017 and 2023 with most hydro plants located in Sarawak, a state rich in hydro resources.

• Project cost estimated at RM5bn, which we understand will be financed through a combination of debt and equity. Gearing is expected to increase though the Group believes that the project is not expected to have a significant material effect. Net gearing is currently at ~35% as at 2QFY21. The project is estimated to take five years to complete, with its expected SCOD on 1 June 2027, upon which it will sign a 30-year Power Purchase Agreement with the off-taker, which is TNB itself.

Source: PublicInvest Research - 8 Sept 2021