News/  Comments

• TNB has entered into a conditional Share Sale Agreement to purchase 30% equity stake in GAMA Energi for cash consideration of US$243m (RM1.02bn) from GAMA Holding, IFC (International Finance Corp.) and GIF (IFC Global Infrastructure Fund).

• The acquisition is in line with TNB’s 5-year International Expansion Roadmap, to increase its international power generation capacity. Based on GAMA website, GAMA Energi has a few assets :

• Currently, GAMA Energi is constructing Kirikkale CCGT power plant with 840MW capacity (96% stake) and expected commercial operation in 2016 (operating license expire 2060) in Turkey. It is also developing 3 other windpower projects in Turkey with combined capacity of 255MW, with commercial date expected in 2016-2019.

Positives

• on the acquisition, which will enlarge and diversify TNB’s energy portfolio (into renewables) and improve its international energy exposure. Foreign investment risk in Turkey is relatively low, given the good track record between Malaysia and Turkey as well as existing long term investment of Khazanah linked companies in Turkey.

• We believe the relatively high acquisition price at RM2.3m/MW is justifiable on the back of longer term operating licenses (up to 55 years).

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

• 1) Implementation of IBR and FCPT mechanism which eliminates uncertainties about future earnings; 2) Improved power generation from coal-fired power plants; and 3) Low energy price environment.

Negatives

• 1) Decision on tariff revisions depends on the government; and 2) Depreciation of RM against US$.

Valuation

• Maintain Buy with unchanged TP of RM15.80 based on DCFE.

Source: Hong Leong Investment Bank Research - 15 Dec 2015