TNB has now completed its RM46.98m acquisition of a 70% stake in Jimah East  Power  Sdn  Bhd  (JEP)  from  1Malaysia  Development  Bhd  (1MDB). TNB  said  all  the  conditions  precedent  in  the  share  sale  and  purchase agreement  with  1MDB  for  the  stake  acquisition  have  been  fully  satisfied and  complied  with.  Besides  that,  TNB  has  also  signed  a  shareholders’ agreement with Mitsui & Co. Ltd which owns the remaining 30% stake in Project 3B (2,000MW coal-fired power plant). Mitsui has prior commercial arrangement with Chugoku Electric Power Co. Inc., whose participation in Project  3B  is  solely  subjected  to  TNB  and  Energy  Commission’s  written approval.  Chugoku  may  take  up  50%  equity  in  Project  3B  after  financial close (15 Oct 2015). (Source: Bursa)

Comments: We are neutral on this development. While Chugoku is one of Japan’s  biggest  regional  power  utilities,  we  believe  TNB  is  sufficiently capable of undertaking the project on its own, given TNB’s healthy balance sheet  (gross  debt/equity  gearing  of  0.5x).  In  any  case,  the  entry  of Chugoku  would  require  the  written  approval  of  TNB  and  the  Energy Commission. We would expect TNB to remain as the majority shareholder in Project 3B. We maintain our Buy rating on Tenaga with unchanged TP of RM15.00.

Source: Affin Hwang Capital Research - 10 Jul 2015