Tenaga Nasional; Buy; RM6.00
Price target: RM7.00; TNB MK
TNB and Petronas to invest in Sabah gas power plant and LNG terminal

The gas-fired power plant will be majority owned by TNB, with Petronas taking the lead to set up the LNG terminal. These projects are targeted for completion in 2015.

The new power plant will increase generation capacity in Sabah to address the frequent breakdowns occuring in Sabah. We estimate investment of RM1bn by TNB with bulk of the investment to be funded by internal cash. We expect TNB's annual capex to increase from RM4bn p.a. currently to c.RM5bn p.a. over the next 3 FYs due to new investments in the new coal and gas-fired power plants. TNB's net gearing remains reasonable at 0.4x.

We maintain our Buy rating for TNB with RM7.00 TP for strong earnings recovery in FY12. We expect TNB's earnings to recover strongly in FY12F following the RM2bn gas compensation and increase in gas supply to 1,150mmscfd for FY12. The gas shortages issue should also be resolved following the completion of the new regas plant by Petgas in Jul 2012.

Source: HwangDBS Research 2 Feb 2012