CIMB Research maintains Overweight on Malaysia’s power sector

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KUALA LUMPUR: Malaysia's power sector remains an Overweight with catalysts anticipated from the Economic Transformation Programme-backed electricity demand and power-plant tenders.

“Our top pick remains Gas Malaysia for its defensive earnings, debt-free balance sheet and strong cash flows,” said the research house on Wednesday.

It said that following the Energy Commission's call for requests for qualification (RFQ) on Dec 16, 2012, it received seven submissions for Project-3B.

Project-3B is a 2x1,000MW greenfield coal-fired power plant project that will be commissioned in stages from October 2018 to April 2019. The submissions must include a transmission line to one of the six approved nodes along Tenaga's 500kV grid system.

CIMB Research said the shortlisted bidders would be announced in April and invited to participate in the tender.

“This announcement follows the EC's shortlisting of Tenaga and 1MDB in Feb 2013 for Project-3A, a 1x1,000 MW brownfield coal-fired power plant project to be operational in October 2017,” it said.

The research house said all major players in the power generation space have made submissions, including 1MDB, Tenaga, Malakoff and YTL.

“We are surprised that Automan Energy, backed by the Negeri Sembilan royal family, made a submission as news reports had suggested the royal family might exit the power-generation industry,” it said.

“If we use the Prai gas-fired power-plant tender results from October 2012 as a guide, we believe 1MDB and Tenaga will submit the most competitive bids. Both are backed by sovereign capital and may have lower hurdle rates to meet.

“As Tenaga monopolises transmission in Malaysia, we believe its bid would be aggressive, based on its industry expertise and knowledge. Going by the Janamanjung and Tanjung Bin extension awards in 2010, the total cost for Project-3B may be RM6mil to RM7mil/MW or RM12bil to RM14bil,” it said.

CIMB Research said investors should accumulate Tenaga (Trading Buy) on the back of this announcement as future tender awards would catalyse its stock. However, Tenaga is not an Outperform due to election risks, it said.