JAKS Resources Bhd is said to be courting Tenaga Nasional Bhd (Tenaga) as  a  potential  partner  for  its  US$2.25bn  2x600MW  coal-fired  power  plant project in Hai Duong, northern Vietnam. Sources say JAKS is currently in talks with Tenaga, offering the utility giant as much as 70% of the project, the  construction  portion  of  which  alone  is  estimated  to  cost  RM5bn.

The deadline  to  achieve  the  preconditions  and  financial  close  has  been extended twice and the  latest is Oct 31 this year. Sources say the project’s IRR is at least 15% because the power purchase agreement is on a take-orpay basis. (Source: The Edge)

Comments:  We  believe  that  any  approach  to  further  expand  into  foreign markets would require the proper due diligence by Tenaga, and if the risks are  properly  address  would  be  positive  for  Tenaga.  We  however  observe that Tenaga has historically been more focused on offering operation and maintenance  services  in  foreign  markets,  and  has  not  aggressively expanded its foreign power plant portfolio given the regulatory and political risks involved.

We gather that Tenaga currently has just two power plants overseas, namely in Pakistan and Saudi Arabia. Domestically, we note that Tenaga  would  be  kept  busy  with  the  possibility  of  taking  over  Track  3B while also working hard to meet the deadline for Track 4A. Pending further clarification from management, we maintain our Buy rating on Tenaga with unchanged TP of RM17.50.

Source: Affin Hwang Capital Research - 20 Apr 2015