TNB shares slip despite renewable energy deal in India

TNB also signed large-scale solar photovoltaic PPAs last month with Redsol Sdn Bhd and Coral Power Sdn Bhd.

PETALING JAYA: Tenaga Nasional Bhd (TNB) shares slipped 0.1% to RM13.54 despite entering into a partnership to grow its renewable energy (RE) portfolio.

Tenaga Nasional (TNB) had entered into an agreement to subscribe to a compulsorily convertible debenture (CCD) issued by India’s GMR Bajoli Holi Hydropower Pte Ltd (GBHH) for 2.26 billion Indian rupees (RM133.2mil).

The proposed investment of 2.26 billion rupees will be funded via a combination of internally generated funds and borrowings.

The CCD has a tenure of 30 years and will be converted into a 30% equity stake before the end of tenure.

This is to facilitate GBHH’s construction of a 180MW run-of-river hydroelectric power plant within the Himalaya range in the state of Himachal Pradesh, India.

Overall progress of the project stands at 78% and the plant is expected to commence its commercial operations by October 2019.

The agreement was inked with GBHH, GMR Energy Ltd and GMR Infrastructure Ltd.

According to PublicInvest Research, the 30% equity acquisition will not have a significant impact on TNB’s earnings in the near term.

Hence, the research house is maintaining its forecasts and estimates on TNB.

“We understand that the hydroelectric power plant project offers attractive and stable returns with a 17-year power purchase agreement with a reputable AA-rated offtaker.

“This acquisition will fit into TNB’s expansion plan to increase its RE portfolio.

“Once fully operational, the proposed investment will raise TNB’s total international RE portfolio to an estimated 370MW,” said PublicInvest Research.

Meanwhile, Nomura Research expects TNB’s profit after tax and minority interest to increase by 11% and 6% in financial years 2019 and 2020 (FY19 and FY20), respectively.

This is will be mainly driven by a steady rise in power demand and absence of impairments reported in the first nine months of 2018.

“As generation project capex cycle ends, we estimate free cash flow yield will rise to 7.3% in FY20, in line with Asean utility peers.

“Malaysia’s power demand was weak from the second quarter of FY17 to the end of FY17, averaging just 0.2% year-on-year during the period.

“However, we have seen a decent recovery in power demand over the past three quarters, with average power demand growing by about 2.7% year-on-year compared to regulatory period two power demand growth assumption of 1.8% to 2% during FY18 to FY20.

“Most of the revival in power demand is attributable to the industrial sector in the past two quarters,” said Nomura Research.