KUALA LUMPUR: Tenaga Nasional Bhd’s  (TNB) share price fell as much as 30 sen or 2.4%, although analysts concurred that the utility group had struck a fair deal to take over a power plant project called Project 3B from 1Malaysia Development Bhd (1MDB).

In addition to the weak market sentiment, some analysts opined that TNB’s prospects would still be clouded by “bailout fears” as long as 1MDB is looking for buyers for its power generation assets.

The utility stock hit an intraday low of RM12.38 yesterday. It pared from losses to end the day at RM12.62 yesterday, down six sen or 0.47%, with about 6.81 million shares done.

Last Friday, TNB (fundamental: 1.3; valuation: 1.8) told Bursa Malaysia that it had signed a share sale and purchase agreement with 1MDB to acquire a 70% stake in Jimah East Power Sdn Bhd (JEP). Japan’s Mitsui & Co Ltd owns the remaining 30% equity interest in JEP.

The price for the stake is below Project 3B’s development cost of about RM83.68 million, incurred by 1MDB as at April 17, according to TNB’s announcement to Bursa.

“The RM47 million, which is about a 44% discount to the actual amount of RM83.7 million incurred and paid by 1MDB, in our view is reasonable, relative to the size of the project and its positive long-term effects on the group’s future earnings,” PublicInvest Research’s Syarifah Hidayatul Akmal commented in her research note yesterday.

JEP is the special purpose vehicle set up to develop Project 3B, which is a 2,000mw coal-fired power plant in Jimah, Negeri Sembilan.

The estimated project cost of Project 3B is RM11.7 billion, which TNB expects to raise a RM9 billion debt through a sukuk issue.

“We believe this eagerly-anticipated announcement would provide some relief to lingering concerns about whether TNB would be paying a premium in acquiring [the project],” added Syarifah, who has an “outperform” call on the utility stock with a target price at RM14.64.

Nevertheless, Kenanga Research’s Teh Kian Yeong reckoned that TNB will continue to face selling pressure as the 1MDB saga remains unsettled.

“In all, we are positive about the acquisition given the reasonable purchase cost. However, we maintain our opinion that so long as 1MDB’s asset sales of the remaining brownfield power plants [under Edra Global] are not settled, TNB’s share price will continue to come under pressure on fears of overpaying in case of it acquiring the assets,” Teh said in his research note yesterday.

The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.

This article first appeared in The Edge Financial Daily, on July 7, 2015.