KUALA LUMPUR: Affin Investment Research is maintaining its Buy on TENAGA NASIONAL BHD [] (TNB) with an unchanged fair value of RM7.20 target price, based on a 10% discount to DCF of RM8 a share (discount rate 7%; growth rate 3%.
It said on Thursday, April 21 that TNB's recent RM107 million investment for a 22% stake in Integrax was purely to facilitate the operational efficiency of the group's wholly-owned Manjung coal-fired power plant.
Integrax owns Lumut port ' which comprises of two terminals, that is the Lekir Bulk Terminal (LBT) and Lumut Maritime Terminal (LMT). LBT contributes more than 90% of Integrax's earnings and provides coal handling and coal delivery services to TNB's Manjung power plant.
Affin Research said to ensure Manjung's power plant reliability, coal procurement, shipment and storage chain process will have to be seamlessly integrated.
It said for example, Manjung pays LBT a fixed and variable rate (spelled out in the 25-year 'concession like' Jetty Terminal Usage Agreement) amounting to about RM85 million per annum. This amount is small ' just 6% of the actual annual coal cost of about RM1.5 billion (based on five million tonnes of coal usage per annum x US$100 per tonne.
Despite the small cost involved in unloading the coal, any disruption in the chain process will ultimately affect the power plant's availability and reliability. In essence, LBT is Manjung's only viable mean of unloading the coal to meet its plant requirements.
'Thus, the above investment is seen to enhance fuel security for the Manjung power plant, especially crucial now that it undergoes a further 1 x 1,00MW capacity expansion ' scheduled to come on-stream by March 2015,' it said.
Affin Research said whilst Manjung is Integrax's single largest customer, TNB has no legal right to use the Lumut jetty. The jetty's legal owner lies with LBT. Thus, hypothetically speaking, Manjung's coal-handling process could potentially face capacity constraint and risk being de-prioritised should LBT have gone ahead with Vale's iron ore transhipment proposal (apparently terminated in 4QFY10).
The research house said whilst it does not believe that the Integrax investment was dearly required, it obviously can help ensure that Manjung remains a key priority to LBT and Integrax.
It said on Thursday, April 21 that TNB's recent RM107 million investment for a 22% stake in Integrax was purely to facilitate the operational efficiency of the group's wholly-owned Manjung coal-fired power plant.
Integrax owns Lumut port ' which comprises of two terminals, that is the Lekir Bulk Terminal (LBT) and Lumut Maritime Terminal (LMT). LBT contributes more than 90% of Integrax's earnings and provides coal handling and coal delivery services to TNB's Manjung power plant.
Affin Research said to ensure Manjung's power plant reliability, coal procurement, shipment and storage chain process will have to be seamlessly integrated.
It said for example, Manjung pays LBT a fixed and variable rate (spelled out in the 25-year 'concession like' Jetty Terminal Usage Agreement) amounting to about RM85 million per annum. This amount is small ' just 6% of the actual annual coal cost of about RM1.5 billion (based on five million tonnes of coal usage per annum x US$100 per tonne.
Despite the small cost involved in unloading the coal, any disruption in the chain process will ultimately affect the power plant's availability and reliability. In essence, LBT is Manjung's only viable mean of unloading the coal to meet its plant requirements.
'Thus, the above investment is seen to enhance fuel security for the Manjung power plant, especially crucial now that it undergoes a further 1 x 1,00MW capacity expansion ' scheduled to come on-stream by March 2015,' it said.
Affin Research said whilst Manjung is Integrax's single largest customer, TNB has no legal right to use the Lumut jetty. The jetty's legal owner lies with LBT. Thus, hypothetically speaking, Manjung's coal-handling process could potentially face capacity constraint and risk being de-prioritised should LBT have gone ahead with Vale's iron ore transhipment proposal (apparently terminated in 4QFY10).
The research house said whilst it does not believe that the Integrax investment was dearly required, it obviously can help ensure that Manjung remains a key priority to LBT and Integrax.
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