Tenaga Nasional Bhd (TNB) is acquiring a 30% stake in Turkish power company GAMA Enerji AS for US$243m (RM1.05bn) and is expected to complete the deal by 1Q16. Established in 2002, Gama Enerji owns and operates a portfolio of thermal, wind and hydro assets in Turkey, as well as a large water conveyance project in Jordan.

TNB said Gama Enerji currently has a 840MW natural gas-fired plant and a 45MW wind power plant under construction in Turkey, which will go live in 3Q16 and 4Q16 respectively. (Source: Financial Daily, Bursa)

Comments: We are neutral on this development as the acquisition is unlikely to significantly affect TNB’s 2016E earnings. There are no details on Gama Enerji’s assets at this juncture. TNB’s foreign contribution to overall revenue currently is very small at 1-2%.

With an expected increase in domestic generation market share from the commissioning of the 1,000MW Prai gas-fired plant in Jan16 and Janamanjung Unit 5 in Oct17, foreign contributions to TNB’s earnings would likely remain small for now.

We maintain our BUY rating on TNB with an unchanged DCF-derived (WACC: 8.1%, LT growth: 3.0%) 12-month TP of RM15.50. We believe TNB is undervalued as its share price is not fully reflecting the removal of the overhang from the sale of Edra by 1MDB to a foreign party.

Source: Affin Hwang Capital Research - 15 Dec 2015