Last Wednesday, Tenaga Nasional Berhad announced that it had submitted an indicative non-binding proposal to acquire 1MDB’s power business, Edra Global’s five domestic and eight foreign plants.  Excerpts of Macquarie Equities Research’s (MER) report titled "confirms evaluating 1MDB's assets" can be found below..

Impact

• MER believes the assets of Edra Global are not bad assets; the key in MER’s view is that Tenaga should not be seen to be overpaying for these or any others. A previous news report had stated that Tenaga valued these assets at (an Enterprise Value) RM13bn vs an asking valuation by the seller of as much as RM17bn.

• In its announcement, Tenaga has stated that this is still at an early stage of assessment, and any potential acquisition would have to make financial sense and most importantly add value to shareholders.

• It also clarified that any acquisition would require approvals from non-interested minority shareholders among others and require an independent adviser to evaluate the transaction should it proceed.

• Tenaga is evaluating the assets as it also helps it expand its reach internationally which is part of its 20-year strategic plan

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Action and recommendation

MER maintains an Outperform rating on Tenaga. MER believes at 11x core FY16E PER, the market is already pricing in an expensive acquisition of assets and, as this is disproved, MER sees a significant rerating of Tenaga taking place.

Source: Macquarie Research - 22 Jul 2015