We advise minority shareholders to accept Tenaga’s  higher  revised offer  of  MYR3.25  after  two  independent  advisers  recommended  the rejection  of  the  earlier  offer  price  of  MYR2.75.  NEUTRAL,  with  a  MYR3.25 TP (7.6% upside). The revised offer is 32% above our valuation of MYR2.46, implying a 29x FY15 P/E. While earnings outlook could be enhanced with a higher capex, there will be a long gestation period.     Upping the offer price. Tenaga (TNB) (TNB MK, BUY: TP: MYR16.70) has  increased  its  general  offer  by  18%  to  MYR3.25  (from  MYR2.75). M&A Securities SB, the independent adviser (IA) appointed by Integrax, values  the  company  between  MYR3.60  and  MYR3.62  based  on  RNAV to  reflect  the  current  asset  replacement  value.  Perak  Corp  (PCB  MK, NR), which holds a 15.74% stake in Integrax, has appointed its own IA, Affin  Hwang  Investment  Bank.  It  values  Integrax  at  an  equity  valuation range  of  between  MYR2.98  and  MYR3.25.  Perak  Corp  is  prepared  to recommend shareholders to accept the offer should TNB revise the offer price to RM3.25.  

Secures  agreement  for  TNB  Manjung  5.  Separately,  Integrax  has entered  into its  third  Jetty  Terminal  Usage  Agreement (JTUA  3) for  the import handling of coal for TNB’s 1,000 megawatt (MW) power plant that is due to commence on 1 Oct 2017. The agreement terms are similar to JTUA 2 and in line with our earnings projections. The feasibility of JTUA 3 is based on a target hurdle rate of at least 10%  vis-à-vis the minimum required  project  internal  rate  of  return  for  the  proposed  agreement.  As this is a related party transaction with Integrax’s major shareholder, it is subject to shareholder’s approval at an EGM.  

Accept  offer.  Perak  Corp  will likely  accept the  revised  offer,  which  will raise  TNB’s ownership in Integrax to  37.86%  from  22.12%.  Another 12.14% acceptance is needed to cross the 50% threshold and make the offer  unconditional.  The  revised  offer  is  32%  above  our  MYR2.46 valuation,  premised  solely  on the  earnings  outlook of  TNB’s five  power plants  in  Manjung  and  the  dividend  stream  from  the  Lumut  Maritime Terminal. The new offer gives an implied 29x FY15 P/E, which we think is generous. While the earnings outlook could be more promising should more  capex  be  poured  into  upgrading  the port’s capability once  new customers  are  secured  at  the  Lekir  Bulk  Terminal,  a  long  gestation period  is  envisaged.  We  understand  Integrax  is  already  in  preliminary talks  with  a  foreign  partner  for  the  import,  blending  and  export  of  coal. We  recommend  accepting  the  offer  and  revise  our  call  to  NEUTRAL (from Take Profit) with a MYR3.25 TP, ie the revised offer price.  

Financial Exhibits

Financial Exhibits

SWOT Analysis

Company Profile

Integrax is a port operator in Lumut. Lekir Bulk Terminal, one of its ports is a deepwater port handling the import of coal for Tenaga
Nasional's power plant. 

Recommendation Chart

Source: RHB