• YTL Power (YTLP) has proposed to sell its 33.5% stake and loan notes in ElectraNet Pty Ltd to Australian Utilities Trust for AUD1.0bil or RM3.1bil cash.

• The selling price represents a premium of AUD767.8mil to the carrying value of the investment of AUD258.2mil in YTLP’s books. It is also the price resulting from a competitive sale process by YTLP.

• ElectraNet operates an electricity transmission system throughout South Australia under a 200-year lease. The South Australian transmission network is one of the most extensive regional transmission systems in Australia and consists of 97 high voltage substations and approximately 5,900 circuit kilometres of transmission lines covering a total area of 200,000 sq km.

• YTLP will be recording a one-off gain of RM2.2bil from the disposal of ElectraNet. YTLP will be using RM2.7bil of the disposal proceeds of RM3.1bil for investments and another RM305.7mil for general purposes. It appears that there will not be any payment of special dividends.

• We believe that YTLP would be using the disposal proceeds to invest in renewable energy. Recall that YTLP acquired 664ha of oil palm estates in Kulai from Boustead Plantations late last year so that it can develop a large scale solar power plant of up to 500MW.

• Excluding the one-off gain on disposal, the sale of ElectraNet is expected to improve YTLP’s net profit by 7% to 10%. This is because the interest income from the disposal proceeds of RM3.1bil would more than compensate for the loss of earnings from the sale of ElectraNet. We estimate that ElectraNet accounted for about RM52.0mil or 8.2% of YTLP’s pre-tax profit in FY21.

• The proposed disposal is expected to be completed in 2Q2022.

• We maintain BUY on YTLP with fair value of RM0.77/share.

Source: AmInvest Research - 9 Feb 2022