Investment Highlights

• We maintain BUY on YTL Power International (YTLP) with an unchanged SOP-based fair value of RM2.30/share, which implies FY24F PE of 9.3x. We ascribe a neutral 3- star ESG rating to YTLP.

• YTLP has acquired 243.3mil shares in Ranhill Utilities, representing an 18.9% equity interest. We believe that the shares were acquired from Cheval Infrastructure Fund.

• The acquisition cost was not disclosed. Based on Ranhill’s previous share price of RM0.58/share, we estimate YTLP’s cost at RM141mil.

• According to Bloomberg, Ranhill Utilities is expected to record a net profit of RM47mil and DPS of 2.8 sen in FY24F. Hence, YTLP’s purchase consideration would imply a FY24F PE of 15.3x.

• We do not expect the earnings contribution from Ranhill Utilities to be significant. As YTLP’s shareholding is 18.9%, YTLP would only enjoy dividend income from Ranhill Utilities. Based on a DPS of 2.8 sen, YTLP would be enjoying cash flows of RM6.8mil from Ranhill in FY24F.

• If YTLP equity-accounts for Ranhill, we estimate that it would improve YTLP’s FY24F net profit by less than 2%. More than 50% of Ranhill’s profits come from the environment division (mainly water management services).

• In the long-term, we believe that there are synergies as both groups have similar businesses. Ranhill Utilities manages the whole water network involving 46 water treatment facilities in Johor. Ranhill Utilities is also the biggest IPP in Sabah. It has 3 CCGT plants with 480MW of capacity in Sabah. This is more than 40% of the installed capacity in the state.

• Ranhill Utilities is in discussions with the Energy Commission and Ministry of Natural Resources, Environment and Climate Change to develop solar farms with electricity generated to be used by Ranhill’s Johor water operations.

• Ranhill is also looking forward towards the prospects of exporting electricity to the east coast of Sabah when the Sabah East-West transmission line is completed this year or early next year. This will enable up to 400MW of additional electricity to be despatched to the east coast.

• YTLP is currently trading at a bargain FY24F PE of 8.8x, which is substantively lower than its 2-year average of 24x.

Source: AmInvest Research - 2 Nov 2023