Tenaga Nasional Bhd
(March 9, RM14.62)
Maintain ‘neutral’ with target price (TP) of RM14.64: Tenaga Nasional (TNB) issued a press statement last Friday indicating its optimism about acquiring a controlling stake about Integrax Bhd at the revised offer price of RM3.25 (up from the initial offer of RM2.75) per share. It would seem management is firm on the RM3.25 price tag.

While we do not expect any financial contribution from this takeover, we do not anticipate another price revision as we feel the revised offer is already on the high side. It is an understandable move for the group to own the port operations as it will provide full control over the Lumut Port therefore enhancing security of coal supply to its Janamanjung power plants located nearby, especially with the scheduled expansion capacity.

On Feb 25, TNB revised its offer price for Integrax shares. From the first announcement to acquire Integrax on Jan 9, TNB had increased its shareholding in the company from 22.12% to 23.05% as at March 6, indicating the group’s seriousness in owning the port operations. TNB is optimistic that the revised offer will be well accepted by Integrax’s shareholders.

TNB revised its offer price mainly in response to Perak Corp Bhd’s request. To recap, Perak Corp, which owns 15.74% of Integrax had rejected TNB’s initial offer and hinted that it will recommend to its shareholders to accept TNB’s proposal should TNB revise the offer price to RM3.25, based on the highest indicative range of RM2.98 to RM3.25 given by its independent adviser. Upon the announcement of an upward price revision by TNB, Perak Corp on Feb 26 announced the proposed disposal of its entire equity interest in Integrax and will recommend to its board of directors for approval at a meeting scheduled for March 27. With Perak Corp most likely to accept the offer, TNB needs a minimum of 11.21% to get 50% shareholding in Integrax and consequently acquire a controlling stake.

On March 4, Integrax’s board advised its shareholders to reject TNB’s revised offer as it deemed the price “not fair” and felt Integrax shares are worth between RM3.60 and RM3.66 each though it did opine that the revised price is “reasonable” having considered the historical activity of its shares and the absence of an alternative offer. Amin Halim Rasip, who owns 23.78% of Integrax, and the first to reject the earlier offer, has confirmed that he will still reject the revised offer. With TNB hinting that it would stand firm by its revised offer price, we believe minority shareholders might consider accepting TNB’s proposal.

We maintain our ‘neutral’ call on TNB as we do not expect any significant financial contribution from the takeover as Integrax’s financial year 2014 net profit of RM38.7 million is only 0.6% of TNB’s net profit of over RM6 billion in its financial year ended Aug 31, 2014. — PublicInvest Research, March 9

This article first appeared in The Edge Financial Daily, on March 10, 2015.