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KUALA LUMPUR: Tenaga Nasional Bhd’s (TNB) peaking capital expenditure (capex) suggests room for dividend upside or possible acquisitive growth, MIDF Research said.

TNB via its wholly-owned unit TNB Sepang Solar (TSS), won the first round large scale solar (LSS1) to build and operate a 50 megawatt (MW) solar plant at a 243 acre site in Kuala Langat under a 21-year power purchase agreement (PPA).

MIDF Research said while actual capex detail was not forthcoming, TSS was estimated to have incurred capex of around RM5.5 million to RM6 million per MW (or a total of RM275 million to RM300 million) as the project cost was locked in circa 2016.

Costs should come down to around RM3 million to RM4 million per MW now and this should be reflected in LSS2 (TNB Bukit Selambau) or LSS3 projects.

MIDF Research said TSS was able to generate 4 to 4.5 hours per day, a relatively good production rate.

It said TNB Bukit Selambau (LSS2) will be located further north of the country in Kedah, which entails better irradiation levels of 1,800 kilowatt per hour (kwh) per sq m per year.

“Though we would expect better production, mean bid for LSS2 had come down to around 39sen per kwh.

“While some of these came from lower cost, due to competition, we estimate returns in the high-single digit for LSS2 projects. We also expect TBS finance rates to be lower, sourced from foreign financiers,” it added.

For LSS 3, TNB said some 350 tender documents had been accepted by the regulators with increased competition from foreign players such Marubeni and Kepco.

However, LSS3 entails much higher package limits of maximum 100MW per project versus 30MW for LSS2 and 50MW for LSS1, which can help bring down costs.

“Our channel checks suggest TNB could be looking at a potential site in Kedah for its LSS3 bid. Finance rates should have come down to less than eight per cent now and there is the option of issuing Green Sukuk for financing,” MIDF Research said.

The research house reaffirmed its “buy” call on TNB with an unchanged target price of RM14.40.

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