Tenaga’s regional expansion on the cards after India, Turkey

“Tenaga has been lagging the market rebound since early this year, trading at just 12 fold FY18F earnings relative to market valuation of 16 to 17 fold.

“Players in the sector are sitting on underutilised balance sheets, particularly Tenaga and regional expansion is on the cards for players,” the research arm opined.

Currently, Tenaga is on the lookout for more regional opportunities after having acquired GMR Energy in India and GAMA Enerji in Turkey in the past 18 months, while YTL Power International Bhd’s (YTL Power) expansion of its overseas operations via Tanjung Jati in Indonesia and Attarat in Jordan is boding well due to diminishing returns in its Malaysian power generation.

“YTL Power is estimated to generate 15 to 19 per cent equity IRR from Tanjung Jatui and Attarat respectively versus the single digit return domestically,” said the research arm.

With all factors considered, the research arm is maintaining its positive outlook on the power sector with Tenaga as its top sector pick with a ‘ Buy’ recommendation and a TP of RM16.80 and YTL Power trailing behind with a ‘Neutral” recommendation and a TP of RM1.56 as they continue to experience an earnings drag from its Singaporean operations.

Meanwhile, Tenaga has also announced in a Bursa filing last Friday that the Imbalance Cost Pass-Through ( ICPT) rebate for the second half of the 2017 period would remain at 1.52 sen despite the increase in fuel price and weaker ringgit in the first half of the year translating to a surcharge of 1.02 sen per kWh.

The power group explained that the difference which equal to an absolute amount of RM1.303 billion would be bore by the Government through utilisation of the Power Purchasing Agreement ( PPA) savings fund which has been accumulated from the renewal of the first generation PPAs at lower rates.

The objective of this PPA Saving Fund is to cushion the impact on tariff to the customers due to the fluctuation of fuel prices.