MMC Corp; Buy; RM2.78
Price Target: RM3.70; MMC MK
MMC Corporation Berhad (MMC) made two announcements on Bursa. The first is Gas Malaysia had on 23 February 2012 entered into a new agreement for the sale and purchase of dry gas with Petronas for the supply of up to 534,143 Gigajoule (492m MMScfd). The tenure is for a period of 10 years from 1 January 2013 until 31 December 2022 with the option to extend for another five years.
To recap, this was one the key stumbling block which saw the listing of Gas Malaysia now slated for 2Q12, delayed from 1Q12. Hence, this piece of news will certainly pave the way for the listing soon. Our current valuation of GMSB in MMC's SOP value is RM2.8bn based on our DCF value (WACC of 8%, terminal growth of 1.5%). This values the stock at CY12 PE of 17x which may appear fair for monopolistic company which is also a cash cow.
The second is Tanjung Bin Energy has entered into a RM5bn EPC contract with the consortium comprising Alstom Power Systems SA, Alstom Services Sdn Bhd, Mudajaya and Shin Eversendai Engineering to build the additional 1,000 MW in Tanjung Bin, Johor. Construction works are expected to be completed within 48 months from the notice to proceed.
There is a Power Purchase Agreement (PPA) with Tenaga for a term of twenty-five (25) years from the commercial operation date which is expected on 1 March 2016. Additionally, there is also a Coal Supply and Transportation Agreement (CSTA) with TNB Fuel Services Sdn. Bhd. for the supply of coal to be used by Tanjung Bin Energy for the purpose of electricity generation by the Power Plant. No details on the PPA have been disclosed.
The generation capacity of Malakoff will increase by 20% to 6020 MW. We also expect cost synergies with its adjacent existing 2,100 MW plant enabling scale to be achieved in a shorter period. We maintain our Buy rating and TP of RM3.70.
Source: HwangDBS Research 24 Feb 2012
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