Journey to Wealth
Genting Bhd - Greenfield power plant in West Java
News
Genting Bhd ('Genting') announced yesterday that PT Lestari Banten Energi (LBE), a 95%-owned unit of Lestari Listrik Pte Ltd (LL), which in turn is an indirect wholly-owned subsidiary of Genting, has entered into a 25-year PPA with PT PLN (PLN) for the Banten Plant.
The remaining 5% equity in LBE is held by PT Hero Inti Pratama (PT Hero), LL's local partner for the project.
This is a greenfield 660MW coal-fired power plant to be built on a 'build, own, operate and transfer' basis in Banten Province, West Java, Indonesia.
The power plant, with an estimated cost of USD1.0b, is expected to commence commercial operations in 2017.
Comments
The IRR for this project is around mid-teens.
It is a 75:25 debt to equity financing project. An equity financing of c.USD237.5m (based on 95% effective equity stake on the USD1.0b cost) should not be a problem for Genting given its net cash position with a strong c.RM2.0b cash flow generating ability annually.
The PPA guarantees a certain percentage of capacity payment from the off-taker, LBE and has a fuel cost pass-through term. In addition, all payments will be linked to a USD index. As such, all these provide some certainties in its earnings visibility.
With this new venture, we opine that Genting is unlikely to dispose off its power assets in the near term despite its intention to divert its non- gaming assets.
Outlook The new power plant has no earnings impact to the group in the near term as it will only be operational by 2017.
Forecast No changes to our estimates.
Rating MAINTAIN OUTPERFORM
Valuation We are maintaining our price target of RM11.69/share based on a 10% holding company discount to its SOP.
Risks Risks to our call are 1) poor luck factor and 2) a substantial decline in CPO prices.
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