News

Tenaga announced that it was selected as the preferred bidder for the development of 1,000MW coal-fired power plant in Manjung, Perak under “Fast Track Project 3A”.

The expected commercial operation of the plant is 1st October 2017, with construction period of 45 months.

TNB will enter into negotiation with Energy Commission in respect of the Bid, the Project Documents and the proposed Offset Programme. The letter of award will only be issued upon the successful completion of the negotiations.

Comments

We are positive with the announcement, as Tenaga will be able to ensure continued low power generation cost, for it is the lowest bidder at 22.78sen/kWh, out-bided the closest competitor 1 Malaysia Development (1MDB).

For the up-coming Track 3B of 2,000MW coal-fired power plant, Tenaga consortium (with Global Power Ventures and China National Machinery) is also among the 5 short-listed candidates.

With 1MDB acquiring Jimah Power, Malaysia Power industry is undergoing consolidation (dominated by 3 major players namely Tenaga, 1MDB and Malakoff) and transforming into a lean and efficient structure, in view of rising energy prices.

The 3 players will be able to enjoy economy of scales (lower fixed cost/unit power generation) and poised to benchmark against international utility players such as Marubeni, Macquarie Infrastructures etc.

The commencing of Melaka regassification plant in June ensures stable supply of natural gas to the power industry, benefitting Tenaga (lower power generation cost).

Risks

Downside risks: 1) Disruption in gas supply; 2) Delay in tariff revision; and 3) Indonesia implement tax on coal export.

Forecasts

Unchanged.

Rating

BUY

Positives –

• Lower coal price at ~US$90/mt.
• Implementation of automatic FCPT mechanism which eliminates uncertainties about future earnings.

Negatives –

• High commitment on IPPs payments.
• Utilization of coal-fired power plants have reach limit.
• Decision on tariff revisions depends on the government.

Valuation

Maintain Buy with unchanged TP of RM9.05 (pending upcoming 3Q13 result announcement) based on DCFE.

Source: Hong Leong Investment Bank Research - 17 Jul 2013