- We maintain HOLD on YTL Power International (YTLP) with an unchanged sum-of-parts based fair value of RM1.65/share, which implies a CY14F PE of 12x.
- Business Times reported today that YTLP is speculated to be in direct negotiations with the Energy Commission (EC) is to secure either the Track 4A or 4B power plant projects, in contrast with competitive tenders for the past 2 years. Recall that both Track 4A and 4B involve a combined gas-fired capacity of 2,000MW.
- The source said the EC is expected to release a letter of award to a private company for the contract to build a 1,400 megawatt closed-cycle gas turbine power plant in Johor to be completed in 2018.
- But as EC chairman Datuk Abdul Razak Abdul Majid had recently reiterated that the projects will continue to be awarded via competitive tenders, we view the visibility of YTLP securing either project 4A or 4B as low.
- The EC also told Tenaga Nasional to expedite the completion of the 500-kilovolt southern line, which links Lenggeng in Negri Sembilan to Yong Peng in Johor, from an earlier schedule in December 2018.
- Unless this transmission line can be completed earlier, we do not expect a power purchase agreement to be fast-tracked to a third party at this stage.
- We also expect strong political opposition to any direct negotiations in new power plants, with The Star reporting today that Tenaga’s unions has expressed their concerns to the EC chairman.
- We highlight that YTLP did not secure the 2,000MW Project 3B coal-fired power plant project even though it submitted the lowest bid in the tender.
- Hence, the group’s exposure to Malaysian power generation earnings, which accounted for 13% of 9MFY14 profitable operations, may cease by Sept 2015 and lead to a significant absence of domestic earnings contribution.
- We also remain cautious on Yes losses given the group’s commitment to expand its services to 10,000 schools in Malaysia under the 1BestariNet project. There is a likelihood that the breakeven level may not be achievable after Yes achieves its targeted subscriber base of 1mil. Hence, we maintain our FY14F-FY16F for now.
- The stock currently trades at a fair FY14F PE of 11x, compared to Tenaga’s 12x.
Source: AmeSecurities
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