AmResearch reiterated its BUY call on TENAGA NASIONAL BHD [] (Tenaga) with an unchanged fair value of RM10 a share, based on a 10% discount to DCF of RM11.10 a share.
On Tuesday, Sept 7 Tenaga announced the signing of three small renewable energy (RE) agreements to purchase electricity for 21 years which will increase the group's RE capacity by 20.5MW or 23% to 109MW.
The annual purchase value of RM38 million translates to a unit rate of 21 sen/KWh, comparable with the RE agreements which Tenaga signed in the past.
“The cost of purchasing RE is higher compared to coal generation, estimated at 18-19sen with coal prices at US$90/tonne. But the impact to Tenaga is insignificant as the group's RE capacity represents only 0.5% of peninsula Malaysia's installed capacity of 21,817MW,” it said in its report on Tenaga on Wednesday, Sept 8.
Valuation-wise, Tenaga trades at an attractive CY11F PE of 11x vis-vis a 3-year average of 14x.
AmResearch said it continued to like Tenaga due to the following:
(1) Stronger power consumption growth - a 1-ppts increase could lead to a 3% earnings enhancement;
(2) A strengthening ringgit which enhances earnings by 12% for a 10% ringgit appreciation;
(3) Improving economies of scale with declining power reserve margin - currently at 42%;
(4) Possibility of an electricity and gas tariff adjustment towards the year-end;
(5) Higher dividend payout; and
(6) Return of foreign investors, as their holdings rose from 8.5% in January 2010 to 11.2% in July this year.
by The Edge Malaysia
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