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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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