A  Financial  Daily  report  today  said  YTL  Power  is  understood  to  have submitted  the  lowest bid  of  25  sen  per kWH  for  the  proposed  Project 3B, while TNB is said to have put in the highest bid at 28 sen. We expect the  project  winner  to  be  made  known  at  end-2013.  We  remain OVERWEIGHT on the sector as we hold on to our belief that a potential deregulation of the existing power tariffs may catalyse a major re-rating of the sector.

• Five  consortiums  in  the  running.  To  recap,  five  consortiums  have been shortlisted by the Energy Commission to participate in the tender exercise for Project 3B, comprising a 2x1,000  megawatt (MW)  coal-fired power  plant.  The  plant,  a  greenfield  project  with  an  estimated  cost  of MYR13bn-15bn, is set to be operational by 2018-2019.
• YTL Power submits  the lowest  bid.  Based on a  Financial Daily  report, which  quoted  industry sources, YTL Power  (YTLP MK, NEUTRAL, FV: MYR1.51) is understood to have submitted the lowest bid at 25 sen per kilowatt  hour  (kWH).  This  is  followed  by  1Malaysia  Development  Bhd (1MDB),  whose  bid  was  not  mentioned.  Meanwhile,  Tenaga  Nasional (TNB MK, BUY, FV: MYR10.13) is said to have submitted the highest bid at 28 sen per kWH,  while Malakoff’s bid is said to be around 26 sen per kWH.
• Other factors to  take  into consideration.  At 25-28 sen per kWH, we estimate that the IRR for Project 3B is 8-11%. Nonetheless, we note that there  are  other  factors  that  the  Energy  Commission  will  evaluate  in arriving at a decision, such as: i) location, ii) delivery track record, and iii) engineering, procurement, and construction partner.
• Maintain OVERWEIGHT.  All in, we maintain our OVERWEIGHT stance on  the  utilities  sector  as  we  hold  on  to  our  belief  that  a  potential deregulation  of the existing tariff scheme  may catalyse a major re-rating of the sector.  We expect  the project winner to be made known at end-2013.

Source: RHB