Tenaga has been reported to consider listing its GenCo in 2021, post completion of the group’s corporate restructuring business. We are neutral on the exercise as the listing will not have any material fundamental impact to the group. Nevertheless, it will allow Tenaga to improve its segmental business focus as well as reporting transparency. We estimated the potential market valuation of GenCo to be up to RM13bn (based on c. RM1bn profit and 13x PER). Maintain BUY recommendation with unchanged TP: RM12.50 (based on DCFE) for its stable cash flow and dividend yield.

NEWSBREAK

According to Bloomberg, Tenaga is considering listing its power generation business GenCo on Bursa in 2021, following completion of its on-going corporate re-structuring exercise. Upon listing, investors would be given shares in the unit in proportion to their existing holdings in Tenaga.

HLIB’s VIEW

Neutral impact to Tenaga. As anticipated, we do not discount the possibility of Tenaga listing its GenCo subsidiary post corporate exercise, allowing Tenaga to improve its segmental business focus in anticipation of the on-going industry transformation and potentially allow Tenaga to raise new capital for GenCo. The listing exercise will also allow better reporting transparency. However, we do not expect material fundamental changes to Tenaga’s business outlook. Based on back of the envelop calculations, the expected net profit of GenCo is c.RM1bn with potential market valuation of up to RM13bn upon listing (based on current 13x PE similar to Malakoff).

Maintain BUY, TP: RM12.50. We maintain BUY recommendation on Tenaga with unchanged DCFE-derived TP: RM12.50. Tenaga’s earnings and cash flow are expected to be stable under the IBR/ICPT mechanism. Dividend is expected to remain stable at 50-60sen/share.

Source: Hong Leong Investment Bank Research - 16 Nov 2020