- We maintain our BUY recommendation on Tenaga Nasional with an unchanged DCF-derived fair value of RM15.13/share, which implies an FY15F PE of 12x and a P/BV of 1.7x.

- Last Friday, Tenaga made a conditional take-over offer to acquire all the remaining shares it does not own in Integrax Bhd at a cash offer price of RM2.75/share. This translates to a total of RM644.2mil for the remaining 77.88% stake.

- Integrax, which owns 80% of Lekir Bulk Terminal (LBT) and 50% less 1 share of Lumut Maritime Terminal (LMT) through Lumut Port, provides coal handling services and port facilities for Tenaga’s 3,100MW Janamanjung coal-fired power plant called Stesen Janakuasa Sultan Azlan Shah, Manjung.

- Tenaga is presently Integrax’s largest shareholder, having acquired a 22.12% stake at a PE of 10x back in March 2011 to ensure the smooth operations of LBT against the backdrop of a board tussle.

- At present, Amin holds 21.37% of Integrax and is its second largest shareholder while Perak Corp indirectly has 15.74%.

- The acquisition would be a strategic fit for Tenaga given the need for management control over Integrax to secure the coal-handling services for its power plant and enhance the efficiency and operations of its power station.

- The offer price, which is at a 19% premium over Integrax’s last traded price of RM2.31/share, values Integrax at an FY13 historical PE of 20.2x. This is in contrast to Tenaga’s 12x currently. That said, this appears to be fair given that the PE for ports range between 20x-23x.

- We are neutral on this acquisition as the financial impact from this deal is insignificant. Our back-ofenvelope calculations, which assume that Tenaga will fund the acquisition entirely through borrowings, show that incremental earnings and rise in net gearing would be negligible (<1%).

- Tenaga will be releasing its 1QFY15 results on 22 January. We expect the numbers to meet our expectations on the back of stable energy costs and decent electricity demand growth of 3%. While coal prices continued to remain low at ~USD62/tonne, we expect the savings to be largely offset by higher LNG prices, which have ticked up to RM58/mmbtu.

Source: AmeSecurities