Journey to Wealth
Tenaga - OUTPERFORM - 19 June 2012
News Tenaga Nasional (Tenaga) has signed a 2-year MoU with PT PLN, the Indonesian owned power company, and PT Bukit Asam (PTBA), a coal mining company, which owns the Production Operation Mining Permit in Indonesia. The MOU includes building a 275KV interconnection line from Telok Gong in Melaka to Garuda Sakti in Sumatera, Indonesia and the development and construction of a mine mouth coal fired power plant in Peranap, Indonesia.
Comments There are three parts to the MoU i.e. 1) coal mining; 2) a c. 1000MW coal-fired power plant in Indonesia and 3) 60-70km of 275KV submarine cable that will connect Peninsula to Sumatera. Tenaga and PT PLN will only take a minority stake in (1) and equal majority stakes in (2) and (3). However, the exact shareholding structure and CAPEX details are not available yet as the parties are still discussing the terms.
We are not surprised as Tenaga mentioned it will be exploring the 'ASEAN grid' idea with Indonesia. This involves cross border electricity exchange, which will be handy for both countries to share excess capacity during energy crisis periods.
We view this as long-term positive for Tenaga as it is exploring new electricity sources instead of relying purely on its own or from the IPPs.
Outlook The last couple of months' gas supply continues to be weak at 1000-1150mmscfd. Positively, it appears unit demand has softened to 4.3% since 7M12's 4.9%, which bodes well for Tenaga as it means burning less-expensive fuels. We will release our 3Q12 result preview closer to Tenaga's results date (July 2012).
Forecast No changes to our FY12-13E core earnings of RM1.82b-RM2.98b (refer overleaf for assumptions).
Rating Maintain OUTPERFORM
Investors should take a 6-9 months view as FY13E should see improved gas supply and thus, lower fuel cost. Gas shortage supply compensations will continue until Sept 2012, which is a decent substitute to fuel cost pass-through via tariff revisions, which still shows strong government support.
Valuation Unchanged Target Price of RM7.50 on an average FY12-13E core EPS and target Fwd PER of 17.0x.
Risks High demand will result in more expensive fuel generations. Unexpected gas supply curtailments.
Source: Kenanga
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