CGS-CIMB Research positive on Tenaga, regulatory risk low

TNB Sepang Solar plant, Selangor. The 50MW large scale solar plant is currently the largest solar plant in Malaysia. Pic by CIMB Equities Research.

KUALA LUMPUR: CGS-CIMB Equities Research is positive on Tenaga Nasional as the regulatory risk from sector reform seems to be low, as the power giant will likely maintain its monopoly in the transmission & distribution segments.

It said on Tuesday Tenaga is one of the cheapest big cap counters in the market with a decent dividend yield of c.4% for FY19-21F. 

“Our TP of RM15.40 is based on sector average CY20F P/E of 15 times,” it said.

Last week, Tenaga organised a site tour for 16 sell-side analysts to the TNB Sepang Solar plant, Selangor.

The 50MW large scale solar plant is currently the largest solar plant in Malaysia, awarded under the first round of large scale solar photovoltaic (LSS 1) plants bidding. The plant is located 20km north west from Kuala Lumpur International Airport.

The TNB Sepang Solar plant started operations in November 2018, with a 21-year LSS power purchase agreement (PPA) signed with Tenaga. The plant has a land size of 243 acres and c.243,000 solar PV modules were installed.

TNB Sepang Solar plant purchased the solar PV modules from Canadian Solar, a China-based company due to lower costing. 

“We gather the locally produced solar PV modules usually cost c.25% more than those from China,” it said. 

The solar PV modules are positioned facing southward to get the most exposure to sunlight during the day, and tilted by c.5 degrees to ensure maximum energy generation and easier maintenance.

The tariff for package three (including TNB Sepang Solar) under LSS 1 was 40-43 sen/kwh, versus the average generation tariff of 27.05 sen/kwh under the current incentive-based
regulation mechanism. 

In Malaysia, Tenaga has 75MW renewable energy (RE) capacity installed as of March 2019, which is about 0.6% of its total installed generation capacity. 

“We believe Tenaga will likely expand its RE portfolio, in line with government’s focus to increase the national’s installed RE capacity to 20% of total installed capacity by 2025,” CGS-CIMB Research said.
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