- In a filing to Bursa Malaysia yesterday, Tenaga Nasional Bhd said that the government has approved the transfer by 1Malaysia Development Bhd (now Edra Global Energy) of its entire shareholding interest in Jimah East Power Sdn Bhd (JEP) to the group following the receipt of an addendum to the Letter of Award dated 3 June 2014 for the project.

- In view of this, Tenaga now has an effective 70% shareholding interest in JEP while Mitsui & Co. Ltd. will retain the remainder 30% equity stake. Note that JEP was established by the 1MDB-Mitsui Consortium back in 2014 to undertake the development of the 2x1,000MW coal-fired power plant in Jimah, which is also known as Project 3B.

- This latest development comes on the heels of Tenaga’s letter of invitation from the EC on 19 June 2015 to undertake the project following financing issues at 1MDB.

- The terms and conditions of the earlier Request for Proposal had then included:- (1) the Tenaga-Mitsui Consortium undertaking all obligations of JEP as a developer and appointment an EPCC contractor; (2) the firm and levelised tariff of 26.67sen/kWh; and (3) the financial close of 15 October 2015.

- In addition to the above, the addendum also states that the scheduled COD for Unit 1 and Unit 2 will now be June and December 2019 – a delay from October 2018 and April 2019, respectively. The plant’s net effective capacity is 39.5% at full load.

- We are leaving our BUY call on Tenaga and our FY15F-FY17F earnings at this juncture pending an official announcement by Tenaga on whether the group and Mitsui will accept the terms of the addendum. The consortium has seven days to decide.

- Tenaga’s shares has been under heavy selling pressure of late following concerns that it will be overpaying for the 70% JEP stake. The stock had retraced by 15% since the press reported of the possibility of Tenaga taking over the project back in February 2015.

- Tenaga’s valuations are undemanding. The stock is currently trading at FY15F-FY16F PEs of 11x, below its 3-year average of 15x. Dividend yields are also decent, at 2.7%.

Source: AmeSecurities Research - 30 Jun 2015