- We maintain HOLD on YTL Power International (YTLP) with an unchanged sum-of-parts based fair value of RM1.56/share, which implies a CY15F PE of 12x.
- The Economic Times reported that YTLP is in the advances stages of negotiations with India-based NSL Group to acquire up to 49% stake in NSL Orissa Power and Infratech.
- NSL Orissa Power is setting up a 1,320 MW coal-fired power project in Angul, district of Orissa with an investment of Rs 8,000 crore (US$6.8mil), which is being funded through debt:equity of 70:30. NSL Infratech is involved in operations and maintenance services for the power plant as well as real estate and infrastructure.
- The company has acquired land for the supercritical thermal power project, obtained approvals from the authorities, and awarded the engineering, procurement and construction contract to Tata Projects.
- The full capex of a 1,320MW coal plant could easily reach US$2.3bil, based on Tenaga’s Project 3A’s US$1.7mil/MW. Based on a 30:70 equity to debt ratio, we expect a 49% equity stake in the plant to cost RM1.1bil, which is well within YTL Power’s funding capability.
- NSL Group has other power projects, such as a proposed 2,640MW coal plant in Talanchankadu Village, Nagapattinam District in Tamil Nadu. It also has renewable energy projects with various joint-venture partners.
- We are cautious on this investment given India’s regulatory uncertainties over coal and electricity supply to off-takers. For example, Tenaga’s combined cycle Liberty Power gas plant in neighbouring Pakistan had encountered fuel supply issues in the past which required significant impairments for its investment.
- For the group’s domestic power generation business, which will expire in September next year, there is a strong likelihood that the power purchase agreement for the Paka and Pasir Gudang plants may be extended by a few years, given that Peninsular Malaysia’s power reserve margin may drop below 30% by 2016 if the Gen1 plants are taken offline.
- But we 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. The stock currently trades at a fair FY15F PE of 12x, at the high region of its 3-year PE range of 10x-12x, with an absence of dividend visibility.
Source: AmeSecurities
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