TENAGA (5347) - Tenaga Nasional - Integrax acquisition hiccup
Target RM0.70 (Stock Rating: HOLD)
An article in The Edge weekly stated that Integrax's majority shareholder refused to accept the offer from Tenaga. Tenaga could make a better offer but the question is how much would be enough? Even if Tenaga does not make a better offer, we think that it would still end up with a controlling stake in Integrax. We make no changes to our target price of RM15.92 and Buy call. We expect the strong 1Q15 results to act as a re-rating catalyst for Tenaga.
What Happened
The Edge weekly reported that Tenaga's plan to take over Integrax has hit a snag, as the port operator's founder and major shareholder, Amin Halim Rasip, stated that he would reject the offer of RM2.75 per share. Amin currently owns 22.8% of Integrax, making him the single largest shareholder. Amin's basis for the rejection was that the offer price did not reflect the value of the company. Tenaga's next move is uncertain, as we believe that it is very interested in taking over Integrax because by 2016-2017, its port will serve 4,100MW of Tenaga's coal-fired capacity, representing almost 20% of total generation capacity in Malaysia. Tenaga currently owns 22.1% in Integrax and it would need to fork out RM644.2m to buy all the shares that it does not own at the offer price of RM2.75.
What We Think
We think that Tenaga may raise its offer price to convince the shareholders of Integrax (namely, Amin) to part with the company. The current offer price values Integrax at 20x historical P/E, which is a bit steep, as we have highlighted before. Valuations aside, Amin's reluctance may be prompted by his aim of securing a deal from Vale International SA. This would likely improve Integrax's earnings in the future. If this is the case, Amin may not sell at any price. And Tenaga upping its offer would not make a difference. Note that the article noted that Tenaga wants Integrax to focus on serving Tenaga, while Amin is intent on broadening its client base.
What You Should Do
If Tenaga does make a better offer, we would be neutral, as we believe that Tenaga is very keen to secure control of Integrax for strategic purposes. On the flip side, if Tenaga decides to maintain its current offer, it could end up with 60% of Integrax (excluding Amin and Perak Corp), which would give it more control over the company than the other parties. This majority stake may be enough for Tenaga to steer the direction of Integrax in order to meet its own strategic targets. We maintain our Buy call on Tenaga.
Source: CIMB Daybreak - 19 January 2015
Target RM0.70 (Stock Rating: HOLD)
An article in The Edge weekly stated that Integrax's majority shareholder refused to accept the offer from Tenaga. Tenaga could make a better offer but the question is how much would be enough? Even if Tenaga does not make a better offer, we think that it would still end up with a controlling stake in Integrax. We make no changes to our target price of RM15.92 and Buy call. We expect the strong 1Q15 results to act as a re-rating catalyst for Tenaga.
What Happened
The Edge weekly reported that Tenaga's plan to take over Integrax has hit a snag, as the port operator's founder and major shareholder, Amin Halim Rasip, stated that he would reject the offer of RM2.75 per share. Amin currently owns 22.8% of Integrax, making him the single largest shareholder. Amin's basis for the rejection was that the offer price did not reflect the value of the company. Tenaga's next move is uncertain, as we believe that it is very interested in taking over Integrax because by 2016-2017, its port will serve 4,100MW of Tenaga's coal-fired capacity, representing almost 20% of total generation capacity in Malaysia. Tenaga currently owns 22.1% in Integrax and it would need to fork out RM644.2m to buy all the shares that it does not own at the offer price of RM2.75.
What We Think
We think that Tenaga may raise its offer price to convince the shareholders of Integrax (namely, Amin) to part with the company. The current offer price values Integrax at 20x historical P/E, which is a bit steep, as we have highlighted before. Valuations aside, Amin's reluctance may be prompted by his aim of securing a deal from Vale International SA. This would likely improve Integrax's earnings in the future. If this is the case, Amin may not sell at any price. And Tenaga upping its offer would not make a difference. Note that the article noted that Tenaga wants Integrax to focus on serving Tenaga, while Amin is intent on broadening its client base.
What You Should Do
If Tenaga does make a better offer, we would be neutral, as we believe that Tenaga is very keen to secure control of Integrax for strategic purposes. On the flip side, if Tenaga decides to maintain its current offer, it could end up with 60% of Integrax (excluding Amin and Perak Corp), which would give it more control over the company than the other parties. This majority stake may be enough for Tenaga to steer the direction of Integrax in order to meet its own strategic targets. We maintain our Buy call on Tenaga.
Source: CIMB Daybreak - 19 January 2015
