TNB’s proposed Gama Enerji deal to be completed by 1QCY16

by **Cals** Thu 17 Dec 2015, 00:33

TNB’s proposed Gama Enerji deal to be completed by 1QCY16

By AllianceDBS Research / The Edge Financial Daily | December 16, 2015 : 10:27 AM MYT

This article first appeared in The Edge Financial Daily, on December 16, 2015.

Tenaga Nasional Bhd
(Dec 15, RM12.82)
Maintain buy with an unchanged target price (TP) of RM15: [size=16]Tenaga Nasional Bhd (TNB) ([You must be registered and logged in to see this image.] Valuation: 1.80, Fundamental: 1.30) announced that it had proposed to acquire a 30% stake in Gama Enerji AS for US$243 million (RM1.05 billion).
Gama Enerji is a power and water infrastructure development company operating in Turkey and Jordan, with an installed power generation capacity of 1,215mw and 100 cubic metres (m3) of water supply capacity.
It is also currently developing a 840mw gas-fired plant and a 45mw wind power plant in Turkey, which will come on stream by the second half of 2016. The proposed acquisition is expected to be completed by the first quarter of calendar year 2016 (1QCY16).
Upon completion of the exercise, TNB will be the largest shareholder of Gama Enerji after Gama Holding AS, which will retain 50.5% ownership.
Both parties have also agreed to develop a regional operation and maintenance service business, and explore thermal capacity expansion in Turkey and neighbouring countries.
This is in line with TNB’s five-year expansion roadmap to secure new generation capacity overseas.
Based on Gama Holding’s financial information, its energy arm’s contribution only constituted 6% of its revenue in 2014, implying about RM106 million.
Assuming a 15% net margin, its contribution to TNB’s earnings will be marginal.
Meanwhile, funding for the proposed acquisition could be easily satisfied via its RM8.9 billion cash pile (33% net gearing as at August).
TNB is currently trading at an undemanding valuation of 11 times price-earnings ratio for the financial year ending Aug 31, 2016.
We continue to like TNB, given the promising power demand and improving earnings visibility arising from the incentive-based regulation framework, as well as the capacity expansion of its power plants. — AllianceDBS Research, Dec 15
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