News  Last Friday, the Energy Commission (EC) announced that the Consortium of 1MDB-Mitshui Co. Ltd has been selected as the Preferred Bidder of Project Track 3B to build a new coal-fired power plant with a capacity of 2 x 1000MW for commercial operation in 2018/2019.

 According to EC, the selection of the Preferred Bidder is based on the criteria of full compliance with all the bid requirements as stipulated in the Request for Proposal (RFP) document and the lowest levelised tariff offered.

 The Consortium will build the power plant in Jimah, Negeri Sembilan at a levelised tariff of 25.33 sen/kWh to be commissioned in stages by Oct 2018 (Unit 1) and April 2019 (Unit 2), with a concession period of 25 years.

Comments  We were not overly surprised by this news, which has been circulating in the media recently; that 1MDB will win although YTLPOWR has the lowest bid against 1MDB, TENAGA and Malakoff.

 Ever so, this is definitely a major blow to YTLPOWR as it has been on the lookout for new projects to bridge the earnings gap as its Gen1 PPA for Paka and Pasir Gudang Power Plants are expiring in 2015.

 It was reported that the difference in levelised tariffs between YTLPOWR and 1MDB were razor thin. Although YTLPOWR’s bid was the lowest, its planned power plant in Tanjong Tohor, Johor is at a significant distance from the plant to the entry point of the grid which could cost more in total as compared to 1MDB’s Jimah site, which is just next to the existing 1,400MW coal-fired power plant there.

Outlook  Although the strong SGD should benefit YTLPOWR, electricity market in Singapore remains competitive with new capacity coming into the market. While the PPAs for local IPPs are expected to expire soon, earnings prospects for YES are set to be better judging from its growing subscriber base. For Wessex Water, earnings are expected to be fairly flattish until it gets the next tariff revision.

Forecast  We keep our FY14-FY15 estimates unchanged as this Track 3B project is not part of our assumption in our estimates.

Rating Maintain MARKET PERFORM

Valuation  Given this piece of news, which would likely put a cap on its share price for lack of local IPP earnings after the Gen1, we decided to factor a 10% discount to its RNAV of RM1.97/share. Thus, target price is reduced to RM1.77/share from RM1.97/share previously.

Risks to Our Call Lower dividend payouts, widening YES’ losses and the rise in global economic risks, especially in Europe.

Source: Kenanga