Genting Bhd (BUY; TP: RM11.20)

Power Plant in Banten, Indonesia

• Genting had entered into a 25-year power purchase agreement (PPA) with PT PLN (Persero), an Indonesian state-owned electricity company, via PT Lestari Banten Energy (LBE), a 95% owned subsidiary of Lestari Listrik Pte Ptd (LL).
• The US$1bn (RNM3.19bn) coal-fired power plant has gross capacity of 660MW, expected to commence commercial operations in 2017.
• We are positive on this newsflow as it creates an opportunity for GenT to make its maiden investment in the Indonesian power sector, hence expanding its power generation portfolio regionally.
• Using the WACC assumption of 12%, GenT will have total accretive value of RM212.4m (95% share) from this project, translating to RM0.06/share.
• GenT’s net cash will fall by 6-14% in FY14-16 as development costs usually peaks during the mid-development period. With the assumption that the costs will only incur from FY13 onwards, there will be no changes to FY12’s net cash of RM6bn.
• EPS declined marginally (0.2%-1%) from higher depreciation, finance cost and lower interest income in FY13-14.
• We increase GenT’s TP to RM11.20 from RM11.14 previously based on SOP valuation. Maintain BUY.

Source: Hong Leong Investment Bank Research - 11 July 2012