News

Comments

• The proposal comes at a relatively sensitive time, given the continuous negative potilical news surrounding 1MDB. Hence, we expect market to have a negative perception on the proposal.

• Nonetheless, we have to access the proposal fundamentally in terms of pricing (has not been made known). We would be negative, should TNB acquire the assets at RM12.0bn (1MDB acquisition cost) and assume the debts of RM6.0bn. TNB’s net gearing position will increase to 89.6% (assuming RM18bn for the acquisition and addition RM9bn debt for Trak 3B) from current expectation of 31.7% by end 2015. 

Risks

• Disruption in energy supply (coal and gas).

• Government delay tariff revision.

• Unscheduled power plant shutdown.

• Depreciation of RM.

• Increased cost of energy fuel.

Forecasts

• Unchanged.

Rating

BUY

Positives

• Implementation of IBR and FCPT mechanism which eliminates uncertainties about future earnings.

• Improved power generation from coal-fired power plants.

• Low coal price environment.

Negatives

• Decision on tariff revisions depends on the government.

• Depreciation of RM against US$.

Valuation

• Maintain BUY with unchanged TP of RM17.00 based on DCFE. We believe the recent share sell down has largely reflect the risk of overpaying for these assets, we remained positive on TNB’s long term earnings growth prospects.