• Share price hit by weak Turkish Lira

• Miniscule earnings contribution from GAMA Enerji

• Debt presumably long-term, but any rollover or mark-to market could be a substantial one-off

• Maintain BUY at unchanged TP of RM16.30, 4.6% yields

Share price impacted by weak Lira. Tenaga’s share price was hit yesterday following a continued fall in the Turkish Lira. The Lira has fallen 24% since late last week. Tenaga has a 30% stake (purchased for USD250m back in 2016) in Turkish based GAMA Enerji, which operates a portfolio of wind, hydro and gas turbine power plants. GAMA Holdings owns a 50.5% stake and the remaining 19.5% are held by International Finance Corp and Global Infrastructure Fund.

Small earnings contribution. GAMA Enerji generated PAT of RM52m in FY17 (Tenaga’s share: RM16m) accounting for just 0.2% of Tenaga’s earnings. Tenaga still carries a RM264m goodwill from the acquisition of the stake in GAMA Enerji. If the goodwill is written off, the impact is just a one-off 4% of Tenaga’s annual earnings, to give a yardstick.

Debt could be a concern. It has been reported that GAMA Holdings (GAMA Enerji’s major shareholder) has been looking to restructure USD1b worth of debt while at GAMA Enerji level, is looking to refinance a USD500m loan it took to construct a gas power plant in 2013. Both GAMA Holdings and GAMA Enerji are private companies, but GAMA Enerji has been reported to be GAMA Holdings’ largest asset. There has also been reports of GAMA Holdings’ intention to sell off its 50.5% stake in GAMA Enerji

Mark-to-market could hit earnings. If the bulk of GAMA Enerji’s debt are foreign debt, there is possibility of a mark-to-market adjustment which could hit earnings by an exceptional amount. While we would presume most of GAMA Enerji’s debt are long term in nature (concession backed), if there is any rollover or refinancing of existing debt, there is likelihood that GAMA will realize some forex loss.

Recommendation. Our TP remains unchanged at RM16.30 at this juncture, and our BUY call is maintained. Dividend yields are attractive at 4.6% (+ve spread against 10yr MGS of 4.26%) while valuations are cheap at 12x FY18F earnings, a substantial discount to the market’s 16x- 17x.

Source: MIDF Research - 14 Aug 2018