Highlights/ Comments

Tenaga arranged a site visit to Janamanjung plant in Perak for fund managers and analysts on 25th September 2013. We were given updates on Janamanjung Coal-Fired Power Plant 1-5 and Lekir Bulk Port (LBT).

Currently, Janamanjung Plant has unit 1-3 with a capacity of 3x700MW sitting on a 325ha reclaimed island, complete with ash ponds, coal stockyard and bulk port. The extension of Janamanjung unit 4-5 (2x1,000MW) will fully utilize the reclaimed island, sharing the same facilities (lower unit cost). The construction of unit 4 has reached ~48% (slightly ahead of schedule) and expected to commence operation on time by 31st march 2015, while unit 5 site is under land clearing stage. Unit 5 is expected to commence operation only by 1st October 2017.

Note that the existing unit 1-3 are subcritical plant with efficiency level of 35-36%, while unit 4-5 are supercritical plant with improved efficiency of ~40%. The efficiency improvement could save overall cost substantially as 75- 80% of operational cost is coal usage.

In order to support the expansions, Tenaga will need to expand the coal stockyard (currently 1.5mt capacity or 2.5 months storage), build additional power cable of 2x500kV (currently 2x500kV), while LBT will install another Grab Ship-Unloader of 80t (currently 2x40t capable of 1.5kt/hour) to feed into existing conveyor belts of 3.8kt/hour.

We remain positive on the current Janamanjung development, which increase Tenaga’s participation in the lucrative power generation segment and lower average power generation cost (as compared to 3rd party IPPs).

Furthermore, Janamanjung expansion signifies government’s commitment in ensuring continued low energy pricing and reducing subsidy burdens, as coal power generation costs 11.5sen/kwh at coal price of US$85/tonne, while gas power generation cost 12.5sen/kwh at gas price of RM13.70/mmbtu and 41.0sen/kwh at gas price of RM45/mmbtu (assuming complete subsidy removal).

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 –

• Low coal price at ~US$85/mt.
• Implementation of automatic FCPT mechanism which eliminates uncertainties about future earnings.
• Earnings neutral from the higher LNG charges.

Negatives –

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

Valuation

Maintain BUY with unchanged TP of RM10.20 based on DCFE.

Source: Hong Leong Investment Bank Research - 30 Sep 2013