- We maintain our BUY call on Tenaga Nasional (Tenaga), with an unchanged DCF-derived fair value of RM9.15/share, which implies an FY14F PE of 12x and a P/BV of 1.5x.

- The Edge reported over the week-end that Tenaga is the front-runner for the tender of a 1,000MW brownfield coalfired power plant, edging out the only other bidder 1Malaysia Development Bhd by 2 sen/kWh.

- The financial magazine said that Tenaga, together with its partner Marubeni Corp from Japan put in a bid of 22.78 sen/kWh compared with 1MDB-Mitsui & Co’s 24.86/kWh. As the primary consideration of the Energy Commission will be the cheapest rate, Tenaga looks set to secure the tender.

- This new 1,000MW plant is expected to commence operation in stages by October 2018 to April 2019. Recall that the site for this new plant will be at Tenaga’s existing 2,100MW Janamanjung plant in Manjung, Perak where another 1,000MW block will be ready in early 2015.

- As indicated in our earlier reports, we are not surprised by this development given that Tenaga was likely to offer the lowest electricity rate amongst the contenders as it remains the only offtaker for electricity generated in peninsula Malaysia.

- Likewise, Tenaga is also the favourite to secure the next tender for the 2,000MW greenfield coal-fired plant called Project 3B, expected to be located in a new site. TenagaChina National Machinery Import & Export Corp is one of the 5 bidders, including 1MDB-Mitsui & Co, Formis Resources, YTL Power International and Malakoff.

- Meanwhile, the upcoming commencement of the additional 150mmscfd of natural gas from the Lekas regassification plant in Malacca by this month is likely to provide greater earnings clarity for Tenaga, with a new electricity and gas tariff price structure in place.

- With a more stable gas supply, now hovering around 1,100mmscfd (vs. an allocated 1,250mmscfd) for the power sector, coupled with the proposed fuel stabilisation fund, we expect Tenaga’s improving earnings transparency to drive its re-rating process further.

- With foreign shareholding currently at 19% as at endMarch this year vs. its peak of 28% back in 2007, the stock still trades at an attractive P/BV of 1.4x – at the lower range of an adjusted 1.1x-2.7x over the past 5 years. Tenaga also offers an attractive FY14F PE of 11x, compared with the stock’s three-year average band of 10x-16x. 

Source: AmeSecurities