TNB takes control of Track 4A

KUALA LUMPUR: Hong Leong Investment Bank Research believes Tenaga Nasional Bhd (TNB) becoming the controlling shareholder of project Track 4A will serve as the best available choice in order to ensure power security over the longer term.

TNB has entered into agreement with SIPP Energy to acquire 51% stake in Southern Power Generation, which was incorporated for the development of Track 4A 2x720MW combined cycle gas turbine (CCGT) power plant project, for RM51 cash.

“The estimated project cost is circa RM4.7bil, translating into RM3,310 per megawatt (MW), which is 18.2% more expensive than RM2,800 per MW for 1,071MW CCGT Prai Power plant,” Hong Leong said. 

The research house expects the debt:equity financing ratio to be 80:20. 

“Being consolidated into TNB’s balance sheet, we expect TNB’s net gearing ratio to increase from 38.6% to 46.4%, still within a healthy position,” it added.

Currently, details on the tariff are yet to be disclosed. 

Based on previous reports, the levelised tariff is 37sen/kWh for Track 4A (based on reference rate of RM3.80/US dollar), which is 5.6% lower than 39.19sen/kW that was initially proposed by SIPP and TNB back in 2015. 

However, Hong Leong said it was still 6.6% higher than the 34.7sen/kWh rate for 1,071MW CCGT Prai Power back in 2012. 

“Judging from the 18.2% higher construction cost (versus Prai Power) and only 6.6% higher tariff, we expect the IRR for Track 4A to be relatively low (even below TNB threshold), similar to previous takeover of Track 3B (from 1MDB) back in 2015,” Hong Leong said. 

The research house has maintained its “buy” call on TNB with an unchanged target price of RM17 based on DCFE. 

“We remain positive on TNB’s long term growth and strong cash flow. Shareholders stand to receive higher dividend yields of up to 5% (versus historical 2-3%) based on the updated dividend payout policy (30-50% of net income),” it said.