Higher tariff for Tenaga lightens Track 3B fears


  • Analyst Reports
  • Monday, 22 Jun 2015

KUALA LUMPUR: CIMB Equities Research is positive on Tenaga Nasional after the power giant received a letter of invitation from the Energy Commission (EC) to submit a proposal to participate in Track 3B project, with a final tariff that is 1.34 sen/kwh higher than the initial tariff.

It said on Monday the higher tariff is positive for Tenaga as it could translate into a present value of RM2bil, which should be more than enough to offset the rise in construction cost due to the weaker ringgit. This should also ease concern that Tenaga may be taking over the project at a loss.

“We make no changes to our earnings forecasts, Add recommendation, and target price (of RM15.60), based on 12.7 times FY16 price-to-earnings (P/E), its one-year average P/E. This news could spark a re-rating of Tenaga,” it said on Monday.  

To recap, EC accepted Tenaga’s participation as a lead developer in Track 3B, a 2,000MW coal-fired power plant in Jimah. The final tariff will be 26.67 sen/kwh which is 1.34 sen higher than the initial tariff of 25.33 sen/kwh.

“However, it did not disclose the price for the 70% stake, the estimated cost of the plant or whether the commercial operation date for the plant will be extended. We understand that more announcements will be made should there be any material developments in relation to the project,” it pointed out.

CIMB Research estimates the 1.34 sen/kwh hike in tariff will translate into a present value of almost RM2bil.

Previous news reports quoted a cost of around RM11bn for Track 3B. Given that RM has depreciated against the US$ by around 15% since the project was awarded in Feb 2014, the plant will now cost RM12bil-RM12.5bil to build.

“The higher tariff should be more than enough to offset the increase in construction cost and contribute positively to Tenaga’s earnings. However, we are keeping our FY15-17 EPS forecasts as Track 3B will only start having an impact on Tenaga’s earnings in FY19,” it said.


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