Power-waste heat job to have minimal impact on TNB’s earnings

KUCHING: Tenanga Nasional Bhd’s (TNB) recent agreement to produce electricity from waste heat from Negeri Sembilan Cement Industries Sdn Bhd’s (NSI) plants, a subsidiary of Cement Industries Malaysia Bhd (CIMA), is not expected to make a meaningful impact to TNB’s earnings.

However, analysts believed that this agreement could open up possibilities of TNB exploring more waste heat recovery initiatives.

In a filing to Bursa Malaysia, TNB’s subsidiary, TNB Repair and Maintenance Sdn Bhd (TNB REMACO) signed a term sheet agreement with NSCI to generate electricity from waste heat from NSCI’s plants on a build, own, maintain, and transfer (BOMT) basis. The project is estimated to have a total value of RM200 million with a capability in reducing up to nine to 12 per cent of NSCI’s electricity cost.

The term sheet agreement will see TNB Remaco develop, design, construct, operate, maintain and raise financing for the waste heat recovery power plant (WHRPP).

AmInvestment Bank Bhd (AmInvestment) in a report does not expect this impact to TNB’s earnings to be meaningful.

“However, we do not discount further waste heat recovery initiatives being explored going forward.”

It noted that based on its estimates, the cement industry has a production capacity of 32 million tonnes per annum.

Amongst the largest cement producers by capacity are Lafarge, CIMA and YTL Cement with a production capacity of 13/7/6mil tonnes per annum respectively, it added.Hence,thereisopportunities for TNB to ride this industry.

“As a result of its strive for green energy generation, we believe the project IRR may be close to TNB’s generative WACC of circa eight per cent. In turn, management expects the WHRPP to reduce NSCI’s electricity cost between nine and 12 per cent,” the research team said.

All in, AmInvestment retained a ‘buy’ call on the stock as it continues to like TNB for its resilient earnings visibility, robust balance sheet and exciting merger and acquisition outlook.