• YTL Power (YTLP) announced that it has completed the acquisition of Tuaspring Pte Ltd for S$270mil cash (RM864mil).

• The original purchase consideration was S$331.5mil comprising S$230mil cash and S$101.5mil issuance of shares and loan notes in YTL Utilities, which is YTLP Seraya's holding company.

• We view the reduction in the purchase consideration positively. We understand that the acquisition price has been lowered to account for two years of depreciation. The proposed acquisition was announced back in March 2020.

• At S$270mil, we estimate that YTLP is acquiring Tuaspring at an enterprise value (EV) of US$1.3mil/MW vs. the replacement cost of US$1.5mil to US$2.0mil per MW for a gas power plant.

• Financing the S$270mil acquisition of Tuaspring is not expected to be a major issue. YTLP's gross cash stood at RM8.3bil as at end-March 2022. The group has cash of almost RM2bil from the disposal of Electranet, which took place this year.

• We think that Tuaspring's earnings contribution may not be significant in FY23F as it would probably take time to ramp up operations. In addition, any meaningful contribution would be offset by lower interest income or higher interest expense from the acquisition of Tuaspring.

• In 9MFY18, Tuaspring (water desalination and power plant together) recorded an operating loss of S$69.8mil. The earnings breakdown between the water desalination plant and power plant was not disclosed.

• Tuaspring owns a 396MW combined cycle gas power plant in Singapore while YTLP Seraya owns a 3,100MW gas power plant.

• We maintain HOLD on YTLP with a SOP-based fair value of RM0.83/share.

Source: AmInvest Research - 2 Jun 2022