TNB  intends  to  take  Integrax  private  in  a  RM644m  offer  by  acquiring  the remaining 78% stake (or 234.2m Integrax shares) that it does not own, at RM2.75 per Integrax share (19% premium to market price).  With a 22.1% stake in Integrax, TNB is  currently the  largest shareholder  in Integrax.  TNB did not provide a rationale for the proposed privatisation. (Source: Bursa)

Comment:  We are neutral on TNB’s intention to take Integrax private.  The exercise  has  minimal  impact  (<1%  upside)  on  TNB’s  FY15E  net  profit based on Integrax’s net profit of just RM40.9m in 2013. TNB should have no funding issues, given its RM8.1bn cash balance.  The offer price implies a 20.2x 2013 PE, which is reasonable vs. Westports’ 26x 2013 earnings as Westports  has  significantly  larger  operations,  a  more  diversified  customer base and regional exposure.

We  think  the  exercise  may  make  financial  and  operational  sense  from TNB’s point of view, as we note that TNB is Integrax’s single key customer for Integrax’s Lekir Bulk Terminal (LBT). Through LBT, Integrax acts as the primary  provider  of  coal  handling  services  and  port  facilities  for  TNB.  We believe  TNB  would  like  to  ensure  that  coal  handling  services  for  its  coalfired power plants in Manjung, Perak are secured for the long term since its coal  requirements  are  expected  to  further  increase  with  the  scheduled commissioning of Manjung 4 in 1Q15 and Manjung 5 in 4Q17. We view LBT as  (already)  an  integral  part  of  Manjung’s  operation.  Maintain  BUY  on Tenaga with unchanged TP of RM16.50.

Source: Affin Hwang Capital Research - 12 Jan 2015