Stock Name: TENAGA
Company Name: TENAGA NASIONAL BHD
Research House: OSK
Tenaga Nasional Bhd
(Aug 20, RM8.79)
Maintain buy at RM8.72 with unchanged fair value of RM9.90: The Department of Environment (DOE)'s rejection of the detailed environmental impact assessment (DEIA) on the Lahad Datu coal plant will likely mean that TNB needs to find alternative power plant solutions for the east coast of Sabah.
While this could mean costlier biogas plants, we are leaving our assumptions intact for now. We maintain our 'buy' call on TNB, given the growing foreign interest in the counter recently as well as weaker coal prices.
Our fair value is unchanged at RM9.90 while we await further developments with regard to the 2,000MW plant-up.
According to East Malaysian media, the DOE rejected the DEIA for the proposed 300MW coal-fired power plant in Sinakut, Lahad Datu, because the report failed to address a large number of important environmental parameters.
The power plant, initially to have been located in Silam, Lahad Datu, has a controversial history.
It was twice relocated, to Sandakan and then to Sinakut, due to opposition from environmental groups, which highlighted the risk that its cooling water outflow would warm the surrounding seas and harm marine breeding grounds while its emissions could result in acid rain.
Nonetheless, it cannot be denied that the east coast of Sabah is badly in need of modern power plants, as it is currently served by ageing and inefficient diesel plants, while up to 40% of its power requirement is imported from the west of Sabah via the East-West Sabah grid. This has led to frequent power supply interruptions in east Sabah.
Given that the DOE has exercised independent judgment on the matter, we believe TNB, which has a 40.8% stake in the Lahad Datu plant, would be forced to consider other alternatives, such as biomass, given the abundance of oil palm plantations in Sabah, or the long-discussed Liwagu dam in central Sabah.
For now, given the uncertainty over possible alternatives, we leave our assumptions on the Lahad Datu plant unchanged as an investment in associates in TNB's balance-sheet forecast.
While this latest development may be viewed as a setback ' Sabah Electricity SB will continue to require government subsidy for its coal ' we make no changes to our estimates for now and leave our discounted-cash-flow-based fair value unchanged at RM9.90.
We note the increasing foreign interest in TNB, with its foreign shareholding having risen back above 9% amid weaker coal prices, and await further developments on the 2,000MW new supply plant-up to replace power from the Bakun dam. ' OSK Research, Aug 20
This article appeared in The Edge Financial Daily, August 23 2010.
Company Name: TENAGA NASIONAL BHD
Research House: OSK
Tenaga Nasional Bhd
(Aug 20, RM8.79)
Maintain buy at RM8.72 with unchanged fair value of RM9.90: The Department of Environment (DOE)'s rejection of the detailed environmental impact assessment (DEIA) on the Lahad Datu coal plant will likely mean that TNB needs to find alternative power plant solutions for the east coast of Sabah.
While this could mean costlier biogas plants, we are leaving our assumptions intact for now. We maintain our 'buy' call on TNB, given the growing foreign interest in the counter recently as well as weaker coal prices.
Our fair value is unchanged at RM9.90 while we await further developments with regard to the 2,000MW plant-up.
According to East Malaysian media, the DOE rejected the DEIA for the proposed 300MW coal-fired power plant in Sinakut, Lahad Datu, because the report failed to address a large number of important environmental parameters.
The power plant, initially to have been located in Silam, Lahad Datu, has a controversial history.
It was twice relocated, to Sandakan and then to Sinakut, due to opposition from environmental groups, which highlighted the risk that its cooling water outflow would warm the surrounding seas and harm marine breeding grounds while its emissions could result in acid rain.
Nonetheless, it cannot be denied that the east coast of Sabah is badly in need of modern power plants, as it is currently served by ageing and inefficient diesel plants, while up to 40% of its power requirement is imported from the west of Sabah via the East-West Sabah grid. This has led to frequent power supply interruptions in east Sabah.
Given that the DOE has exercised independent judgment on the matter, we believe TNB, which has a 40.8% stake in the Lahad Datu plant, would be forced to consider other alternatives, such as biomass, given the abundance of oil palm plantations in Sabah, or the long-discussed Liwagu dam in central Sabah.
For now, given the uncertainty over possible alternatives, we leave our assumptions on the Lahad Datu plant unchanged as an investment in associates in TNB's balance-sheet forecast.
While this latest development may be viewed as a setback ' Sabah Electricity SB will continue to require government subsidy for its coal ' we make no changes to our estimates for now and leave our discounted-cash-flow-based fair value unchanged at RM9.90.
We note the increasing foreign interest in TNB, with its foreign shareholding having risen back above 9% amid weaker coal prices, and await further developments on the 2,000MW new supply plant-up to replace power from the Bakun dam. ' OSK Research, Aug 20
This article appeared in The Edge Financial Daily, August 23 2010.
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