TNB not bidding for Ireland’s power unit

by **Cals** Mon 14 Oct 2013, 10:15

Business & Markets 2013

Written by AmResearch

Monday, 14 October 2013 09:31

TENAGA NASIONAL BHD []
(Oct 11, RM9.05)
Maintain buy at RM9.02 with a fair value of RM10.45: We maintain our “buy” call on TNB, with an unchanged discounted cash flow-derived fair value of RM10.45 per share, which implies 2014 financial year (FY14) forecast price-earnings ratio (PER) of 13 times and a price-to-book value (P/BV) of 1.5 times.

We are positive on TNB’s exit from the tender exercise to acquire Bord Gais Energy, the retail and power division of Ireland’s Bord Gáis Éireann, which is the nation’s main supplier and distributor of pipeline natural gas currently on a fully regulated basis. It also supplies electricity and owns 15% of Ireland’s installed wind farms.

According to reports, the sale of Bord Gais Energy could fetch a price of between €1 billion (RM4.3 billion) and €1.5 billion.

Assuming Bord Gais Energy’s acquisition price works out to RM6 billion, we estimate that TNB’s net gearing could rise from 0.3 times in FY14 to 0.5 times.

TNB chief financial officer Fazlur Rahman Zainuddin said the group had submitted a non-binding offer for Bord Gais Energy to reduce its reliance on regulated business in Malaysia.

But we are positive on TNB not going ahead with the tender given the impact on the group’s earnings against the backdrop of its significant capital expenditure (capex) plans over the next three to five years.

Recall that the group is currently building a 1,000mw coal-fired power plant in Janamanjung, to be completed by 2015, as well as another 1,000mw block expected to be ready in 2017, involving total capex of RM10 billion.

The current bidding exercise for Project 3B (involving a greenfield 2,000mw coal-fired power plant) is expected to close on Oct 23 this year, with the results for the tender to be released by the end of the year.

As TNB maintains its near monopoly status in the transmission and distribution of electricity in Peninsular Malaysia, the group has the natural advantage in any competitive bid, including the 2,000mw gas-fired Track 4A-4B power plants.

The stock trades at an attractive P/BV of 1.4 times at the lower range of an adjusted 1.1 times to 2.7 times over the past five years. TNB also offers an attractive FY14 PER of 11 times, compared with the stock’s three-year average band of 10 times to 16 times. — AmResearch, Oct 11

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This article first appeared in The Edge Financial Daily, on October 14, 2013.