Tenaga Nasional - Jimah Up For Sale?

kiasutrader

Publish date: Thu, 21 Feb 2013, 10:10 AM

THE BUZZ

Bloomberg reported that 1Malaysia Development Bhd (1MDB) plans to buy the 1,400MW
coal-fired Jimah power plant for RM1.7bn, quoting unnamed sources. An 1MDB official
contacted by the wire agency had declined to comment on the potential purchase.

OUR TAKE

25-year PPA expiring in 2034. The Jimah power plant comprises two 700MW units each. The site is approximately 15km from Sepang and 20km from Port Dickson. Parked under Jimah Energy Ventures SB, it is 80%-owned by the Negri Sembilan royal family while the remaining 20% is held by Tenaga Nasional (TNB). Built at an estimated cost of over RM6bn, the plant commenced operation in 2009 on a 25-year Power Purchase Agreement (PPA) with TNB. It is connected to the National Grid via a 51km transmission line from to the Lenggeng and Olak Lempit substations.

Not exactly new. We are not surprised at this move since this is not the first time that Jimah power plant has been rumored to be up for sale. In early 2012, Sime Darby was said to have been keen on the power assets but nothing materialized. If the current speculation proved right, the purchase would mark 1MDB's third power acquisition in Malaysia. In March 2012, the state-owned company bought Tanjong Plc's power generation business for RM8.5bn and in August the same year, it snaped up Genting's domestic energy operations for RM2.3bn.

Potential gains on disposal of over RM300m. Going by 1MBD's acquisition track record, we believe it is likely to take up the entire 100% stake in Jimah Energy Ventures by buying out both the Negri Sembilan royal family as well as TNB's stakes. According to financial disclosures lodged with the Companies Commission of Malaysia, Jimah Energy Venture - which owns the Jimah power plant - reported net losses of RM105.1m in FY12/11 while its shareholders' equity stood at a negative RM394.5m. According to RAM Rating Services, the entity incurred capex of RM76m in FY12/12 and had issued a RM4.9bn senior Islamic Medium Term Note in 2005 with a 20-year tenure, as well as a RM895.0m in junior debt in 2005 with a 29-year tenure. Should the acquisition offer materialize at the reported RM1.7bn, TNB could potentially recognize gains on disposals of over RM300m based on our back-of-the-envelope calculations.

Paving the way for 1MDB's listing. This piece of news coincides with the announcement that 1MDB, together with its partner Mitsui & Co Ltd, has been shortlisted for Project 3A to build a 1,000MW coal-fired power plant to be commissioned by Oct 2017. Note that 1MDB and Mitsui have proposed to build the power plant on the existing Jimah site, which we understand has excess land to accommodate up to 2,000MW in additional capacity. Given that the group had in mid-2011 made known its intention to go public, we believe the potential offer for Jimah is intended to expand its generation capacity from 2,256MW
currently to 3,656MW after acquisition, to prepare for its flotation, possibly later this year, as well as to extract the potential cost synergies by owning the entire Jimah site should it emerge as the ultimate winner for Project 3A.

BUY. We maintain our BUY call on TNB, with our FV unchanged at RM8.41, based on an unchanged 13x FY13 PE. While management was unavailable for comment at this point, we continue to like the group's improving fundamentals in tandem with the weaker coal price. While the potential disposal gain of over RM300m to be recognized by TNB (should 1MDB indeed make an acquisition offer for the 2x700MW Jimah power plant for RM1.7bn) is relatively insignificant to the utility group's annual core earnings of over RM3.5bn, we believe TNB will seize the opportunity to crystallize gains on its minority stake in the power asset.

Source: OSK

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