Dragon Leong blog
YTL Power is potentially a 10x Bagger
Introduction
The share price of YTL Power has been hovering around RM0.60 to RM0.75 in the past 2 years, a far cry lower from the RM1.50-1.60 level in 2015-2016. There are a number of reasons why the share price has dropped by half since FY2016 but I believe that it has bottomed up and is on its way to double or triple up to even move beyond its past glory days. I believe YTL Power may be worth RM3.85 to 7.55 a share, a whopping 530% to 1,040% of its current share price of RM0.725.
Why its share price has dropped by half since 2016?
YTL Power made a net profit of RM1,045 million in FY2016, EPS of 13.0 sen (based on share base of 7,717 million then) and declared a dividend of 10 sen per share. At share prices of RM1.50-1.60 then, the market valued it at a PER of 12x and dividend yield of 6.7%.
One of the main reasons for the start of the share price drop was due to the fallout of earnings contribution from its Malaysia power stations after the expiry of the 21-year Power Purchase Agreement (PPA) with Tenaga Nasional. That removed effectively RM200 – 250 million of annual earnings overnight from September 2015. Though YTL Power got some extension of PPA for its Paka power station for 3.5 years, the profit contribution was much lower than before due to lower capacity and lower tariff during the extension period.
Second reason for the dropping share prices was the reduced earnings contribution from Wessex Waters from RM900-980 million p.a. in FY2015-2018 to the current level of RM500-600 million p.a. in FY2019-2021. One reason for the earnings drop in Wessex was due to the sharp drop in interest rates from late 2018 (12-month Libor dropped from a peak of 3.12% in late 2018 to 0.45% in late 2020) which caused the water tariffs lower. Another reason was the lower pre-determined equity returns given by the authority in the 5-year determination period from April 2020 in the ultra-low interest rates environment.
Third reason was the sharp earnings drop in PowerSeraya from RM400-500 million p.a. in FY2014-2015 to losses of RM150-200 million p.a. in FY2019-2020. The gradual drop in PowerSeraya earnings was due to stiffer competition and over-supply situation in the competitive electricity market.
Forth reason was due to continued losses of its new Wimax division from FY2015, contributing losses of RM100-200 million p.a. until 2021.
Why Things are looking bright for YTL Power?
YTL Power may have hit a bottom and things are certainly looking up for the next few years. I shall examine the prospect of each of its business divisions and their potential value contributions to YTL Power.
(i) Wessex Waters
YTL Power bought the 100% stakes in Wessex Waters from the bankrupt Enron in 2002 at a discount to its Regulated Asset Base (RAB). Wessex Waters is one of the ten regional water utilities companies in the UK, regulated by Ofwat. It supplies water and provides water severage services to 2.8 million customers in South West England. It is a regulated asset with tariffs pre-determined for each 5-year period and performances regulated by Ofwat. The beauty of a regulated asset is that it never loses money and its asset base will always expand along with inflation. There are 10 water utilities companies regulated by Ofwat and Wessex has been ranked top in the past 10-20 years in Ofwat’s efficiency ranking, achieving “industry leading” status in the Environment Agency’s environmental performance assessment and having the least complaints per 10,000 customers for the 9th year running to 2020. A regulated water asset company shall be entitled to some bonus tariff payments if it outperforms its peers in Ofwat efficiency ranking.
YTL Power acquired Wessex in 2002 for 544.6 million pounds valuing Wessex at an enterprise value of 1,239.5 million pounds, which was at a 16% discount to the RAB of 1,474 million pounds then. Wessex’s RAB has since increased to 2.75 billion pounds in 2015, 3.35 billion pounds in 2020 and is expected to increase to 3.89 billion pounds by the end of regulatory pricing period in 2025. Its RAB has increased by 242% from 1,474 million pounds in 2002 to 3,566 million pounds in 2022.
YTL Power has been extremely patient in long term asset investments. It acquired 33.5% in Electranet Australia for AUD58.5 (RM122.9) million in 2000 and disposed it off for AUD1.026 billion (RM3.05 billion) in 2022, making a return of 24.8 times in 20 years!! The stakes in Electranet was sold to Australia Superannuity Fund at 1.6x RAB and about 2.5% dividend yield. It was a handsome gain for YTL Power to monetize this long term asset holding and it was a good long term investment for retirement fund like Superannuity Fund in sub-1% low interest rate environment with its regulated asset increasing over time.
With rising interest rates in next 2 years, Wessex is entering a rapid asset expansion phase with its RAB expected to increase by over 500 million pounds in 2020-2025 regulatory period. If we apply the same valuation of 1.6x RAB to Wessex as in the case of Electranet, Wessex should be valued at 1.6x 3,566 million = 5,706 million pounds (RM31.5 billion). Deducting off its net debt of 2,315 million pounds (12.8 billion), the equity value of Wessex to YTL Power should be worth 3,391 million pounds or RM18.7 billion, which is over 3 times YTLPI market capitalization.
You may ask why somebody would pay such a value for Wessex. First, it is a top quality regulated asset in a AAA-rated country with asset base increasing over time (Wessex RAB increased by 2.4x in 20 years). Investors will be assured of increasing asset value, more so during rising interest rate environment. Secondly, Wessex distributed a total of 450 million pounds of dividends during the 5 year period of 2015-2020, which averaged 90 million pounds per year, yielding 2.65% for an equity value of 3,391 million pounds. This yield is higher than 1-year Libor of 2.01% and US 5-year treasury bond rate of 2.5%. As such, Wessex is a very good asset class for retirement funds who are looking for steady yields and increasing asset value. Just imagine that if Wessex RAB increases by 2.4 times as in last 20 years, Wessex may be worth 13,808 million pounds 20 years later if we value it at 1.6x RAB of 8,630 million pounds then, giving an investor of 242% gains in asset base while enjoying steady and increasing yields. Revenue and operating profits will increase over time along with the increase in RAB. For instance, Wessex revenue has increased from 265.2 million pounds in 2001 to 514.7 million pounds in 2021. The recent purchase of Electranet by Australia Superannuity Fund is a good example of why retirement fund is willing to scoop up top quality regulated asset.
On the other hand, if YTL Power keeps its holdings in Wessex for another 20 years, the worth of its investment in Wessex would balloon to a whopping RM77 billion in enterprise value and RM45 billion in equity value then!! YTL Power’s investment in Wessex has increased 7.5x from RM2.45 billion in 2002 (544.6 million pounds at exchange rate of 4.50 then) to RM18.7 billion in 2022 (based on 1.6x RAB at exchange rate of 5.53 now). If we apply the same multiple taking into account of the strengthening pounds, YTL Power’s worth of investments in Wessex would increase to RM18.7 billion x 7.5 = RM140 billion!
Investors and analysts here will not appreciate the value and potential of Wessex as long as it is unlisted, and no one will look forward 20 years for YTL Power to realize such massive value in Wessex. For instance, CIMB analyst valued YTLPI’s 33.5% stakes in Electranet at only RM588.3 million based on DCF value at 8.0% cost of equity but YTLPI disposed it at RM3,050 million or 5.2x higher than value given by CIMB. The same CIMB analyst valued YTLPI’s 100% stakes in Wessex at only RM4,155 million based on 0.9x book value, for which may be worth 5 times higher. Maybank analyst valued Wessex at even lower RM3,587 million with no basis mentioned.
I reckon that in order for the market / investors / analysts to appreciate the potential value of Wessex, YTL Power should try to monetize part of the value through divestment of certain stakes to strategic investors or/and list up 49.9% stakes in London stock exchange. This is now the opportune time to do this as interest rates are still near record low and Wessex is at the start of a rapid asset expansion phase. Retirement funds or long term investors will be willing to pay 1.6x RAB value for a top notched regulated asset which is at the start of a multi-year expansion, as they will be able to ride on the expansion plan (buy now at a lower asset base compared to few years later after expansion) while they can still get funding at very low interest rates. A disposal of 49% stakes in Wessex will bring in proceeds of over RM9.0 billion to YTL Power while retaining 51% control over the company and enjoying the longer term expansion of Wessex value to potentially RM45 billion in next 20 years.
A table of summary valuation of Wessex based on different matrices:
|
Wessex |
(a) 1.6x RAB |
(b) 1.3x RAB |
(c) 1.0x RAB |
CIMB 0.9x Book |
|
Enterprise Value (RM million) |
31.5 |
25.6 |
19.7 |
|
|
Equity Value (RM million) |
18.7 |
12.8 |
6.9 |
4.9 |
|
Equity Value (RM per share) |
2.28 |
1.57 |
0.84 |
0.60 |
(ii) PowerSeraya
YTL Power acquired 100% stakes in PowerSeraya in 2008 for SGD3.8 billion right after the collapse of Lehman’s Brothers. PowerSeraya is the second largest power generation company in Singapore with registered capacity of 3,100MW. It operates in a competitive merchant electricity market which has an electricity pool that sets electricity wholesale price every half an hour based on supply and demand. To mitigate fluctuating electricity sales prices, PowerSeraya has its own electricity retails company, Seraya Energy, that sells short term electricity supply contracts (3 months to 3 years) to commercial, industrial and residential customers. PowerSeraya has contracts for differences (CfD) with Seraya Energy to pass on the fluctuations of pool prices. PowerSeraya then enters into forward hedging contracts on fuel oil prices and FX to lock in fixed non-fuel margin for its CfD contracts with Seraya Energy. Essentially it is a vertical integrated structure where PowerSeraya earns some fixed profit margin free of fuel price and FX risks.
As it is a competitive merchant market, the generation market as well as the retails electricity market is subject to competition from other players with profit margin squeezed when there is over-supply situation (like in 2015-2020) but getting good profit margin when supply is tight (as in 2007-2014). PowerSeraya was earning steady non-fuel margin of SGD 30 – 35 / MWh in 2004-2007 on generation of steady 9,500-10,500 GWh per year as demand-supply was normal. During financial crisis in 2008-2009, oil prices collapsed in late 2008 and there was no new generation capacity coming onstream, supply became increasingly tight pushing up non-fuel or generation margin to as high as SGD60-80 / MWh. However, the subsequent new planting up by various generating companies (gencos) and the availability of LNG supply in 2013 had tipped the balance to over-supply situation, collapsing generation margin to almost zero in 2017-2018. With the catch-up of electricity demand and no further new capacity plant-up and phasing out of weak players like Hyflux, situation became better from 2019.
Things are certainly looking up for PowerSeraya in next 2 years as supply becomes tighter and it aims to complete the acquisition of Hyflux generation asset later this year. Generation margin is recovering well with PowerSeraya turning in profit of above RM200 million in FY2021. Non-fuel margin is set to jump further from 2023 as the current gas supply contracts (both piped gas and LNG) come to an end in Mar 2023. Gencos signed up for too much LNG gas supply in 2013 and have been bound by strict take-or-pay commitments in the gas contracts in past few years, hence selling electricity at cut-throat prices just to burn off the committed gas every year. Such take-or-pay obligations will fall off from March 2023 so gencos will not compete hard to sell electricity cheap, but will try to earn a healthy margin to recover losses in past few years of over-supply.
Besides CfD with own retailer, Singapore gencos sell certain portion of electricity generated via vesting contracts. Vesting contracts are a form of CfD entered between gencos and the incumbent retailer MSSL and were introduced in 2004 to curb market power of big gencos. Current vesting level is about 18%-19% of each genco’s generation, i.e. 18%-19% of each genco’s generation is sold to MSSL at the vesting contract price. The EMA has determined the non-fuel margin of vesting contracts for 2021-2022 period to be SGD51.27 / MWh. This vesting non-fuel margin is well above the current retails non-fuel margin which is competitive at SGD10-20/MWh now.
Assuming gencos’ non-fuel margin recovers gradually from SGD10-20/MWh now to about SGD30/MWh (which was the steady margin in 2004-2007) from 2023, PowerSeraya would be able to generate gross profit margin of 10,000 GWh x SGD30/MWh = SGD300 million per year. If supply becomes tight after gas supply contracts expire in Mar 2023, or EMA introduces higher vesting contract level to 45% or above (like what it did in 2004) to curb market power, non-fuel margin might shoot up to SGD50/MWh or higher and PowerSeraya would be able to make gross profits of SGD500 million a year.
PowerSeraya has about SGD2.0 billion debts currently paying interest rates of about 1.3% p.a. or interest costs of about SGD26 million a year. Depreciation charges amount to some SGD75 million a year. Operating costs (office overhead, staff costs, administration costs, etc) amount to about SGD50 million a year. Hence, from 2023 onwards, PowerSeraya would be able to make EBITDA of SGD300-500m – 50m = SGD250-450 million a year from generation. (For reference, PowerSeraya achieved actual EBITDA of SGD301 million in FY2007 and SGD355 million in FY2008.) Its subsidiary PetroSeraya earns a steady oil storage tank leasing income of about SGD22 million a year. Total profit before tax may top SGD250-450m +22m – 75m – 26m = SGD171-371m a year. At corporate tax rate of 16%, net profit may come in at SGD143m to SGD312 million a year.
Cash flows will be even stronger at SGD208m to SGD377 million a year as we add back depreciation charges of SGD75m and deduct maintenance capex of SGD10m. YTL Power may recognize profit contribution of RM429m to RM936 million a year and get cashflows of RM625m to RM1,131 million a year from PowerSeraya from FY2024.
Again to realize the value in PowerSeraya, YTL Power may opt to list up to 50% stakes of PowerSeraya in a REIT listing in Singapore stock exchange or sell a 30%-49% stake to a strategic partner. I reckon that PowerSeraya may be valued at 7.0% free cash flow yield or 5.0% dividend yield, or 20x PER. A 7.0% FCF yield is attractive in Singapore where risk free rate is at 1.3%. Hence, PowerSeraya may be valued at RM429m to RM936m x 20 = RM8.6 – 18.7 billion.
The best time to monetize PowerSeraya may come in 2023 or 2024 after non-fuel margin recovers meaningfully to SGD30/MWh level while giving potential investors upsides of additional contribution from the acquired Hyflux asset and adding more efficient generation capacity in later years if cheaper fuel supply is available after 2023. Monetisation of 49% stakes in PowerSeraya may rake in cash of RM4 billion to RM9 billion to YTL Power.
(iii) Jordan Power Venture Company
YTL Power entered into a joint venture with Estonia utility company Enefit and a local partner to develop a 554MW oil shale-fired power plant in Jordan. Enefit subsequently sold down their stakes to 10% from 55%, with YTL Power increasing stakes from 30% to 45% and China Yudean Group taking up 45%. Jordan local partner NEI exited its 10% stake. The joint venture company, Attarat Power has entered into a 30-year Power Purchase Agreement with the Jordan national utility company Nepco with government guarantee from Jordan. The PPA may be extended by another 10 years to total 40 years.
The construction of the power plant is over 98% complete with final technical teething issues being tidied up. The commercial operations date (COD) is being held up now pending an arbitration filed up by Nepco against the project company Attarat Power on “grave deception” alleging that the electricity tariffs signed in the PPA were too high. News reporting in March 2022 indicated that Nepco was losing the case and an international arbitration court judgement would be coming soon. Hence, it is reasonable to assume that Attarat Power may be able to achieve commercial operation in 2H 2022.
The total costs for the oil-share power plant is USD2,100 million with equity portion of estimated USD600 million. At high single digit project IRR, the project shall provide annual cash flows to equity of about USD100 million a year, rising to over USD200 million after debts are fully repaid from year 16.
As such, Attarat Power may be valued at USD 2.0 billion based on initial free cash flows yield of 5% in year 1-15 jumping to 10% from year 16. YTLPI’s 45% stakes in Attarat Power will be worth USD 900 million or RM3.7 billion. At least, it should be worth half of it that is USD450m or RM1.8 billion. YTL Power may consider placing out 10% to Enefit or China Yudean or another strategic partner to monetize part of its investment.
(iv) Indonesia Jawa Power
PT Jawa Power is a special purpose project company that owns and operates a 1,220MW large coal-fired power station in Jawa east, Indonesia. It sells electricity to PLN under a 30-year Power Purchase Agreement. YTL Power purchased a 35% stake in PT Jawa Power in 2004 and has since pared it down to 20%. YTL Power also owns 100% stakes in the operation & maintenance (O&M) company that operates the power plant.
Jawa Power contributes a steady profit of RM170 million a year to YTL Power. As it has a finite commercial life governed by the 30 year PPA, DCF valuation may be the best valuation method to value Jawa Power. Based on 8% cost of equity, CIMB analyst valued it at RM1,540 million to YTL Power, which is reasonable to me.
(v) Mobile Broadband Company – YTL Comms
YTL Comms was set up some 10 years ago after being awarded a wimax licence by Malaysia government. It has been struggling to achieve profitability though losses are narrowing in last 2 years to just RM16 million in second quarter of FY2022.
Things are set to change with YTL Comms getting equal access to the new 5G broadband network being rolled out by Digital Nasional Berhad (DNS) at a cost of RM15 billion. The initial capital cost will be bored by DNS who will then offer a portion of the equity stakes to telcos who opt to participate in the ownership of the network. That means that YTL Comms will not need to fork out heavy capital expenditure but may roll out its 5G services almost on equal basis with other bigger telcos.
YTL Comms currently has over 1.0 million mobile network users under its brand Yes. With the roll out of 5G network, YTL Comms will be able to compete on equal basis with other telcos like Maxis or Celcom as everyone pays the same tariff charges to DNS. The pie of 5G mobile network in Malaysia is big with over 10 million active users. Assuming YTL Comms will get a 15% share of the pie and assuming a monthly fee of RM50 for its 5G services, annual revenue to YTL Comms may amount to 1.5m x RM50 x 12 = RM900 million.
Telcos typically enjoy EBITDA margin of about 50% (eg. DIGI EBITDA margin 50% in FY2020, 48% in FY2021), more so for YTL that is well know of strict cost controls. Hence, YTL Comms may earn a EBITDA of RM450 million a year.
Telcos are typically valued at about 10x EBITDA (eg. DIGI market cap of RM30 billion on EBITDA of RM3.0 billion). As such, YTL Comms may be valued at RM450m x 10 = RM4.5 billion. A more conservation valuation is 8x EBITDA that is RM3.6 billion.
After it achieves steady earnings, YTL Power can then consider listing up a portion of YTL Comms on Bursa stock exchange or selling a strategic 20%-30% stake to a telco partner like one from Korea. A disposal of 25% stake in YTL Comms would net in RM1.1 billion to YTL Power and recoup most of the capital it has poured in this communications business in past 10 years.
(vi) Cash holdings and Debts
YTL Power disposed off its 35% stakes in Electranet Australia for RM3.05 billion in Feb 2022. This effectively turns YTL Power into a nett cash company at the holding level.
Investors may be deterred by purely looking at the massive debts at YTL Power’s balance sheet. These debts are high as YTL Power consolidates debts of various subsidiaries which are mostly ring fenced at the subsidiary level. For instance, Jordan Attarat Power may have total borrowings of USD1,500 million and YTLPI may have consolidated RM2.7 billion of debts in its balance sheet. But this debt is fully ring fenced at the project company level Attarat Power, meaning that any default at Attarat Power will not cause any cross default nor have any repercussion to YTL Power level. These debts will be serviced solely by Attarat Power with its own operating cash flows and YTL Power will not need to pump in any money to help servicing the borrowings there.
As of 31 Dec 2021, YTL Power has total debts of RM30.8 billion on its balance sheet and gross cash holdings of RM10.3 billion, hence nett debt of RM20.5 billion. An estimated RM12.8 billion of nett debts sit in Wessex Waters company level, RM6.0 billion in PowerSeraya, RM2.7 billion in Attarat Power. PowerSeraya may have cash of SGD200 million and Attarat Power USD300m. Hence, after we remove nett debts ring fenced at subsidiary level, YTLPI actually may have nett debts of RM20.5b – 12.8 – (6.0 – 0.6) – (2.7 – 1.2) = RM0.8 billion. This is lower than the estimated nett debt of RM1.1 billion by Maybank analyst and RM7.4 billion by CIMB analyst.
After the disposal of Electranet for RM3.05 billion, YTL Power will turn to a nett cash position at holding level with estimated nett cash of RM2.2 billion or 27 sen per share.
(vii) Future Opportunities
With a nett cash position, YTL Power is embarking on various new projects to expand its earnings base:
(a) Solar Power & Data Centre
YTL Power is acquiring a piece of land of 664 ha at Kulai for development into a solar power farm of size 500MW. Such solar power may be used to power up data centres at attractive tariffs to data centre owners and provide good returns to YTL Power. Recall that the recent large scale solar power tender by Energy Commission ended up with winners at tariffs as low as 17 sen/kWh. In comparison, data centre owners pay at least SGD0.28/kWh or 84 sen/kWh in Singapore. With battery storage solutions that add 30% of costs, YTLPI’s cost of building the solar farm may be about 22 sen/kWh and may sell up to 84 sen/kWh to data centre owners from Singapore. Hence, this may bring in profits of up to RM438 million a year (500MW x 1000 kW/MW x 4 hours/day x 365 days x 60 sen/kWh) when it is fully developed as a 500MW solar-powered data centre. If a 30% discount to Singapore electricity tariff is given to data centre owners, this project may still bring in profits of about RM268 million a year for next 20-25 years. At 7% free cash flow yield, this project may add a value of RM3.8 billion to RM6.3 billion to YTL Power valuation.
(b) Electricity Export to Singapore
Singapore government launched a Request for Proposals (RfP) on 12 November 2021 to solicit interests for import of up to 1,200MW of electricity power to Singapore for diversification of power sources. Submission of proposals closed on 14 April 2022. YTL is expected to be one of the frontrunners to secure part of the power import. Options are setting up a a solar power farm in Johor and producing green hydrogen fuel in Malaysia. This is the first phase of a bigger power import plan by Singapore who aims to import up to 4,000MW of renewable energy by 2035.
In preparation for such power import, Singapore EMA has started some trial runs, one of which is to import 100MW from Peninsular Malaysia for 2 years. YTL has won this bid to supply 100MW to Singapore. Hence, YTL has first mover advantage in securing the subsequent bigger packages.
Assuming that YTL Power will win a 500MW bid in the first phase of Singapore power import tender, this may potentially bring in profits of RM268 million to RM438 million a year, and add a value of RM3.8 billion to RM6.3 billion to YTL Power valuation.
(c) Acquisition of Distressed Assets
YTL group is well known for buying quality assets at distressed sale, eg. buying Wessex at a discount to RAB from Enron in 2002, buying Lot10 and Starhill from Taiping Co during 1998 financial crisis.
Opportunities may be coming in next 2-3 years as the world is entering a rising interest rate environment. US Fed is expected to raise interest rates by 5 to 7 times this year and may start quantitative tightening cycle as early as next year. US yield curves have just inverted, history shows that US economy may go into recession in 1-2 years after yield curves invert. Distress sales may be available again as early as 2023.
Good deals were hard to come by during the past decade from 2009 to 2021 as interest rates were kept at near zero level that has inflated asset valuation. Cheap money was abundant to chase after assets at exorbitant valuation. That is the reason why YTL Power was not able to find any good deal that fits into its conservative approach.
However, timing is right now for YTL Power to try to monetize some of its matured assets like Wessex and PowerSeraya at a premium while interest rates are still low, then wait for right time in next 2-5 years to scoop up good assets at a discount.
Summary
(i) Sum-of-Parts Valuation
We can now do a sum-of-parts valuation of YTL Power using analysis above and compare to value given by CIMB and Maybank analyst:
|
|
Blue Sky Case (RM million) |
Conservative Case (RM million) |
CIMB (RM million) |
Maybank (RM million) |
|
Wessex |
18.7 |
6.9 |
4.9 |
3.6 |
|
PowerSeraya |
18.7 |
8.6 |
5.3 |
0 |
|
Jordan Power |
3.7 |
1.8 |
0 |
0.5 |
|
Jawa Power |
1.5 |
1.5 |
1.5 |
1.2 |
|
YTL Comms |
4.5 |
3.6 |
1.2 |
0.1 |
|
Data centre |
6.3 |
3.8 |
0 |
0 |
|
Export to Sgpore |
6.3 |
3.8 |
0 |
0 |
|
Nett cash |
2.2 |
2.2 |
(6.5) |
1.9 |
|
TOTAL |
61.9 |
32.2 |
6.4 |
7.3 |
|
Total RM per share |
7.55 |
3.93 |
0.78 |
0.90 |
Analysis above shows that YTL Power may potentially be worth up to RM3.93 - 7.55 per share if it takes up initiatives to unlock value of its various assets in next 2-3 years to create a 10x bagger.
(ii) Cash flow Valuation
We can similarly do a cash flow valuation based on analysis of its subsidiaries above:
|
Annual cash flow |
Blue Sky Case (RM million) |
Conservative Case (RM million) |
CIMB (RM million) |
Maybank (RM million) |
|
Wessex |
498 |
387 |
385 |
418 |
|
PowerSeraya |
1,131 |
625 |
180-360 |
196-250 |
|
Jordan Power |
369 |
185 |
0 |
0 |
|
Jawa Power |
170 |
170 |
0 |
170 |
|
YTL Comms |
450 |
300 |
(100) |
(100) |
|
Data Centre |
438 |
268 |
0 |
0 |
|
Export to Sgpore |
438 |
268 |
0 |
0 |
|
Others |
66 |
57 |
(100) |
(400) |
|
TOTAL |
3,560 |
2,260 |
365-545 |
284-338 |
|
RM per share |
0.43 |
0.27 |
0.04-0.07 |
0.03-0.04 |
YTL Power achieved positive operating cash flows (before capex and ignoring working capital changes) of RM1,762 million for FY2021 and RM1,310 million for FY2020. Capex was high at RM1.7 billion in FY2021 and RM1.3 billion in FY2020 due to construction costs for the Jordan power plant, hence limiting its ability of paying dividends. As Jordan power plant is near completion, hence capex for next 2 years will be minimum unless new projects like the solar power farm take off.
With PowerSeraya recovering well and YTL Comms rolling out 5G services, I am confident that YTL Power will be able to achieve annual operating cash flows of minimum RM1.7 billion just from existing assets and minimum RM2.2 billion when it fully develops the 500MW data centre and bag a 500MW power export to Singapore. YTL Power will be able to declare dividends back to 10 sen or even 15 sen every year from FY2023 onwards. Using a 7% free cash flow yield as valuation, YTL Power shall be valued at RM0.27 – 0.43 / 7% = RM3.85 to RM6.15.
In summary, whether we analyse it based on SOP or cash flow valuation, YTL Power should be worth a lot higher than RM0.725. With YTLPI management now also actively finding ways to increase its market capitalization so as to raise its profile and be able to bid for big assets at any distressed sales coming soon, the interests of the management and shareholders are aligned. YTL Power will be a multi-bagger in next 2-3 years.
Dragon Leong
21 April 2022
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Discussions
4 people like this. Showing 50 of 57 comments
It is an unfair statement that the management of YTLPI has many failed project like Singapore operations. It is true that they had not been able to find good deals since 2009 when interest rates were pressed to near zero and asset value was inflated. I would rather wait for the right opportunity too strike rather than buta-buta chasing high asset value with single-digit returns.
2022-04-22 15:27
The investment in PowerSeraya was a huge success, contrary to most belief. What I know is that YTL Power has recouped all its equity money put in this SGD3.8 billion deal to acquire 100% stakes in PowerSeraya during the few years when generation margin was good in 2009-2012. Just imagine that an equity money of more than SGD1.1 billion was gotten back within 3-4 years and debts at PowerSeraya reduced by few hundred million dollars. Now left is still 100% stakes in PowerSeraya that is the second largest power plant in Singapore. You need to know that power generation licence in Singapore is very very hard to get, even harder than getting an IPP licence in Malaysia. An IPP licence in Malaysia may last just 21 years but a generating licence in Singapore lasts forever.
2022-04-22 15:31
If I know any share will be 10X, I will just keep quiet and keep buying it with my monthly income.
Wonder why the author need/desire to write long long to the world that YTLpower is potential a 10Xbagger?
2022-04-22 15:59
+10x or -10x?
YTLP been going down for so many years
Is the management interested in growing the company?
I see many retailers buy stocks based on previous performance.
They think all stocks will eventually go back to their previous high, like AirAsia.
If stock investing is so easy, where got people lose money.
YTLP can 10x? Then Public Bank can 100X.
2022-04-22 16:04
Furthermore, electricity market in Singapore is cyclic and YTLPower has managed to recoup all equity investment before the market entered into over-supply situation and weathered through the long period of low margins from 2014 to 2020, now entering a margin expansion phase in next few years. There is a real possibility for PowerSeraya to earn over SGD 300 million a year again just like it did in 2007-2012. Just imagine if it does, then PowerSeraya will be able to pare down borrowings to near zero in next 5 years and this investment is all free. YTLPI's next generation and next next generations will be able to enjoy the fruits of investment for many more years to come.
2022-04-22 16:10
Sslee, why do you think Kook Yew Yin keeps promoting steel counters and Leno and yourself promoting Insas?
2022-04-22 16:30
Sslee, I have read what you wrote about Insas and how undervalued it was. I did buy some Insas but unfortunately the timing of entry was not right and now I get stuck in it. If I had a fixed monthly income like yourself, I would also slowly accumulate good stocks like YTL Power and enjoy the multiyear expansion rewards and steady dividends, unfortunately I do not have a fixed monthly income. I have to put in money earned from investment to buy stocks like Insas and YTL Power, and most people want their investments to return positive gains as soon as possible.
2022-04-22 16:39
because this shark stuck already. haha. no bilis can help you. pls promote to bigger fund house.
2022-04-22 16:59
dragon328, thank you for sharing for Ytlpower. YTLPower has been on my watchlist but it is still not convincing for me to invest until they really shows increase in profit qoq or yoy.
2022-04-22 17:16
Another concern is a lot of family members are holding key position in the YTL group like that of Leong Hup. You see their share price performance over 10 years of the 2 groups you know there are some similarities...
2022-04-22 17:19
Philip ( buy what you understand)
This is pure nonsense
1. ytl communications is INA super red sea market, with Digi and maxis and celcom already big spenders in a very high capital cost business.
2. Utilities are generally low margin, high stability and very very high maintenance and upgrade and expansion cost. Why did hyflux go bankrupt in the first place? Debt. How much debt is seraya taking? Insane.
3. Let's look at comparative analysis, how many utility companies have you known that have gone up 10x in 2-3 years? They are known as slow growers got a big reason.
4. High debt companies usually get very low profitability. The reason why Berkshire is a huge monster in the market is because it doesn't utilities debt to grow its utility business. But do you see it growing 10x even with cash expansion? I don't. So why would ytl be the exception to the rule everywhere? Can you share some other exceptions to the rule where debt fueled listed companies can grow to 10x value in a few years recently?
2022-04-22 17:24
Philip, you are a veteran investors and a veteran in i3 forum and I am just a small investor trying to make some money from hardwork research. I will try to reply to your points:
1. Yes telco is a high capital business and DIGI, Celcom and Maxis have spent a lot to get to the positions they are in now. If YTL Comms tried to spend the same amount of capex to penetrate the market held by these telcos, it would be a suicide. But now the game has changed. The market is coming to 5G era and the good thing is that DNS is going to spend the heavy capex to build the 5G network and each telco just pays the equal access fee to roll out the 5G business. The telcos have a choice to subscribe for some equity in the network owner but it is not mandatory. The 5G pie is huge enough to accommodate 5 players and how much market share each can get will depend on their marketing effort and return expectation. I do not see it a big difficulty for YTL Comms to get a 15% market share out of 5 service providers. The fact shows that it is a high margin business with DIGI EBITDA margin at 50% in past few years.
2022-04-22 20:23
2. Yes utilities business has high stability and requires high capex for maintenance and expansion. As in the case of Wessex being a regulated business, high capex is a good thing as it will increase its regulated asset base (RAB) faster and the water tariffs there depend on RAB multipled by the agreed WACC to provide a fixed return to water companies. Yes, Hyflux went burst as it entered into power generation business at the wrong time when the electricity market was entering an over supply situation. It is a cyclic business there with merchant electricity market, I believe Hyflux decided to go into power generation (away from its water business) due to the high power generation margin before 2013 but it was not aware of how bad the over supply situation might get it into trouble. Again it all comes back to the management capability and its investment strategy to see if an investment goes well or goes burst. YTL Power bought into PowerSeraya at a bargain just after Lehman's Brothers collapsed so Temasek was willing to sell. At good times like 2005-2007, no one would sell a controlling stake at a bargain. Again, YTL Power is buying over Hyflux at a discount to its asset, and at a price even cheaper than building a new power plant. You need to wait patiently for such an opportunity to scoop up good assets at a bargain price. If you read carefully what I wrote in the article, for this investment in PowerSeraya, YTL Power had long time ago taken back all its equity money, leaving some debts pushed down to the asset level.
2022-04-22 20:33
3. Utilities are long term assets and provide long term stable returns, you do not expect a utility company to give you 10x returns in short period of time. But if you have patience, buy one at a dsicount and hold them long enough then sell it off at a premium at the right time, they can give you many many times returns. YTLPI just did that with Electranet with 25x returns of equity money in 20 years. But now we are talking about a share price of a stock that may go up 5x to 10x in 2-3 years. There are many examples recently. In Bursa, Yinson went up from RM0.30 in Mar 2013 to RM3.50 in July 2019, giving investors 11x returns in 6 years. It is also in a business with huge capex but with the right investment decisions, Yinson managed to bag lucrative contracts to grow big. DNex share price shot up from RM0.20 in Jan 2021 to RM1.33 in Feb 2022, giving a 6.5x returns in just one year. Hibiscus share price increased from a low of RM0.24 in Mar 2020 to RM1.38 in Mar 2022, a 5.7x increase in 2 years. Hibiscus may become a 10x bagger if it continues going up another 50% as oil prices remain hign above USD100 per bbl.
2022-04-22 20:41
4. Yes companies with high debts usually have low profitability but sometimes in order to expand you need to borrow, it cannot be using 100% equity money to acquire another company as equity money is always more expensive than debts. Warren Buffet did invest in utilities company like the railroad company BNSF with some borrowings and he thought it would be a key asset for Berkshire a century from now. DNex did borrow money to buy over SilTerra, otherwise it would have missed this opportunity. HIbiscus also need to borrow in order to take over Rapsol assets that will give it doubling oil extraction capacity. Warren Buffet bought into BNSF at a bargain and it may have been a multi-bagger for Berkshire if the asset is sold at a premium. Warren Buffer also bought into OXY, an oil shale company at a good price though it is a debt-laden company. Do you know that OXY cash flows are now so strong that it could repay all of its USD10 billion debts within this year if oil prices stay at USD100 per bbl? OXY share price dropped to as low as USD 10 in Mar 2020 and now trading at USD60, already 6x higher. I expect OXY share price to reach USD100 later this year or next giving Warren Buffet a 10x bagger. Debts are not scary if the company knows how to use it properly. Even Yinson needs to borrow heavily with debts now over RM8.0 billion, otherwise it will not be able to grow and bag new contracts. Anyway, YTL Power is a nett cash company now at holding level, with debts ring fenced at subsidiary levels.
2022-04-22 21:08
What I am trying to say is that for YTL Power to be a 10x bagger, it will need to do all the right things. I am not a short term trader and do not expect YTLPI to shoot up few times in next few weeks or months. It holds long term assets that take time to deliver value to the holding company. YTLPI will need to take initiatives to monetise part of the assets at a premium price at the right time, to continue managing existing companies for them to maximise profits, and to look for new lucrative projects. If it does the right things, then it may be worth 10x higher. Of course whether the share price will move up so much will depend on whether the company can deliver the profit growth and declare higher dividends in next 3 years. I am a freelance researcher and like to share what I analyse and why I think it is undervalued to other like-minded investors. YTL Power is coming at a low base now, way cheaper than few years back. If analysts gave a fair value of RM1.60 to YTLPI in 2015, why now give lower for a company with stronger footing now and embarking on next growth phase? Please note that Wessex's RAB is now 30% higher than in 2015, Electranet has been sold at 5x higher than the value given by an analyst, the company is in nett cash position, PowerSeraya is going into a tight supply market, and the green data centre park has started with a bang.
2022-04-22 21:22
Under utility portfolio, I actually hold Ranhill and Ytlpower. I already cut loss on Ranhill but still keep ytlpower for the reason I do not mind waiting as long as ytlpower still give me cash dividend.
2022-04-22 22:08
By the way Insas is the most undervalued stock in Bursa.
As of how long it will remain undervalued that is a million dollar question?
2022-04-22 22:26
Dragon328, I think you have put in lots of efforts in your research for the above article. Thank you. One may or may not agree with you on certain aspects but I think you have brought out the several positive and recent developments of YTLP quite eloquently. Moreover at current prices (before it goes too high) of between 70 and 75 sen and with decent dividends around the corner based on history (I always believed a bird in hand......) I am positive about this counter.
2022-04-22 22:59
the interest rate hike coming. which will result ylt power debt to be higher. that would not affect profitabilites?
2022-04-23 01:16
Philip ( buy what you understand)
FYI yinson is 18% of my portfolio( previously larger except now smaller in relation to pchem gains), so I know yinson business exactly. For yinson their contracts are mostly bare boat charter which is just FPSO conversion and rent out on a daily basis to users. The O&M is a different contract some of which awarded to yinson others not. The point why yinson is different is that their rates have nothing to do with the price of oil or the sales of which unlike armada and sapura due to the simple fact that they have no cost implications on the price of and demand of oil energy.
For ytl as you definitely know on supply, demand and pass through cost of energy( or lack thereof) will definitely affect their long term profitability.
For Berkshire energy ( instead of BNSF), if you look so comparative analysis and look at Greg Abel comments and thoughts on investing in utilities you will know why ytl power is definitely not something that will 10x in a few years( as per your article title). I'm sure ytl will continue to generate cash flow and dividends to users, but to claim 10x?
For seraya you are speculating on something that has yet to happen, which until it does I think is a very dangerous way to invest. One should always invest in a business where the asking price is at a margin of safety to the earnings generated.
Berkshire has a 8.5 PE valuation, why? Because the business is highly predictable, fully saturated( not like coke going to sell to aliens in Mars), and in most cases very simple to understand.
YTL is also a very predictable, easily understood business. I have had discussions with ytl investors in my telegram group since last year on the merits, and the results and their belief still have yet to surface.
In any case, how much of your portfolio holdings do you expose to YTL? If it is a 10x to you, I would expect it to be a very large percentage of your portfolio. May I know how high is your conviction level on this?
As for Insas, it is a nonsense company that I would not touch with a ten foot pole. In fact I have increased my exposure into Tesla, Netflix and BABA during this discount period, as I believe over the long term the best way to invest is in companies with huge growth TAM, huge cash flows generators and asking for cheap to fair prices.
For a PE expansion and long term TAM runway, when big sp500 companies are asking for significant discount, the best thing to do is to grow position over time. We cannot time the ups and downs, but we can time the long term performance of the company.
Do you really trust the management of YTL to grow your funds over time?
>>>>>>
Yinson went up from RM0.30 in Mar 2013 to RM3.50 in July 2019, giving investors 11x returns in 6 years.
2022-04-23 06:06
Philip ( buy what you understand)
This I totally agree. Too many investors buy with and eye of what happened in the previous years ( like sslee with his Insas and it's decade plus inari jackpot). However to make big money we need to buy with an eye for the future ( like my previous investment in topglove, pchem, yinson, QL etc. Of course one cannot escape especially with my bad experience in serba dinamik ( fraud case) but I learned a very important lesson too on finding trustworthy management and how actions and claims are different.
One common theme that recurs: very hard for a company to go bankrupt if they don't have any debt. That has been my guiding principle now in investing in companies. Knowing how to look at good debt and bad debt.
>>>>>>>
Posted by DannyArcher > 14 hours ago | Report Abuse
+10x or -10x?
YTLP been going down for so many years
Is the management interested in growing the company?
I see many retailers buy stocks based on previous performance.
They think all stocks will eventually go back to their previous high, like AirAsia.
If stock investing is so easy, where got people lose money.
YTLP can 10x? Then Public Bank can 100X.
2022-04-23 06:13
Too many investors buy with and eye of what happened in the previous years. Agree and for the current year, you can safely invest in Plantation stocks.
KUALA LUMPUR (April 22): The crude palm oil (CPO) futures contract on Bursa Malaysia Derivatives ended firmer on Friday, continuing its uptrend as the expectation of stronger exports going forward helped to lift sentiment, a dealer said.
The low vegetable oil stocks are also spurring demand in the palm oil market, according to palm oil trader David Ng.
Palm Oil Analytics owner and co-founder Sathia Varqa said the market attracted renewed buying interest towards the close after trending downhill for much of the day.
At the close, the CPO futures contract for May 2022 perked up RM63 to RM6,871 a tonne, June 2022 gained RM78 to RM6,625, July 2022 rose RM42 to RM6,355 and August 2022 climbed RM36 to RM6,162 a tonne.
2022-04-23 07:21
In financial planning, they teach you to take less risk the closer you are towards retirement. Typical asset allocation in your 20s 80% equities 20% fixed income 30s 60% equities 40% FI. As i am approaching 50s and plan to retire in 7 years time, theorectically i should have 80% FI and 20% equities. My current asset allocation is 50% equities 50% FI. By the time i retired, i intend to have 40% equities 60% FI. For me, FI assets are dividend derived equities with relatively stable dividend streams. I currently have 10% of my money in YTL just recently acquired partly because i believe their profit would improve going forward and also the good chance with digital bank. (Even without i am ok) I am very impressed with YTL management since 2005 when i visited their project engineer in their office in Bukit Bintang. I was pleasantly surprised how little manpower were handling multi billion businesses. It was such stark contrast to Ranhill with posh Grade A office and legion of PMT. I was recently staying in AC Marriott Kuantan with a nightly rate of closed to RM300. My first impression was not good. Dated exterior yet RM300?? However, i noticed they were the best hotel in term of cleanliness and service in Kuantan. Explained the premium they commanded. Any other hotel with such exterior would be lucky to command RM200 per night. Same for JW Marriott which i just checked out yesterday. Such impeccable customer services. This speaks a lot about YTL management. Indeed, i agreed that the Yeoh's are conservative people. Is that wrong? That's what i want at my retirement age. Most important is they are not conservative but keep all the money for own enjoyment (MUI?)
Everyone wanna look for the ultimate growth stocks. If you are like Philips, great. However, majority are not. So, let's keep to prudent investing disciplines. Let's not dreamt of 100% compound return which many gurus claimed in i3. Philips compound return of 20 plus percentage already near Warren Buffett status if he could sustain over 30 years period. Let's just settled for 10-12% compound because majority of us are just tom dick and harry.
2022-04-23 10:11
Received this link YTLPower x10, and first time user for i3invest. good write up Dragon, keep up the good work, i believed YTLpower could be rerated toward the pricing table you mentioned of RM3.5 or RM7.5 depending how well they deliver, what i know now is that at least the worst could be over and buying share is all about the timing for good company. This YTLpower is definitely a good time to accumulate now. A local bursa company which hold global assets
2022-04-23 14:58
Congratulations to Philip on his Yinson giving him a 11x bagger. Agree with you that to make big money, you need to have an eye for the future. I believe one who bought into Yinson near RM0.30 in 2013 must have had good foresight or high convection in the management to deliver the growth. And there were good reasons why Yinson were trading at depressed level in 2013, as there were too many uncertainties out there and Yinson had not delivered the results. But you bought into it at 30 sen if you knew the business well and can reasonably project that business would start looking good for Yinson. It is a similar case now with YTL Power that trades at near decade low for some reasons, but I know very well that things are starting to get better and better for this company. I have over 15 years of working experience in the power industry and I can see that PowerSeraya will be doing well again from next year. To make big money, don't you have to see things faster than others and see things others don't? When you see the company delivering earnings jumps, then it will be too late to chase. Now it is the time to accumulate while it is still low.
I will not get you to chase if it has doubled in share price. On the contrary, its share price has dropped by half in past few years and the likelihood of it doubling back to RM1.50 is high. I have high convection in the management delivering this time. Even if share price does not move up, I will still enjoy good steady dividends of over 6.7% p.a. Can you tell me which other stock that can give dividends yields of over 6.7% p.a. and may have chance to double its share price in 2-3 years?
2022-04-23 20:47
Windy1974, agree with you that YTL management is conservative. I have a friend who had a relative working inside YTL Power. He told me that the key management team in YTL Power was just a small handful of people but included all the necessary expertise in technical, commercial, legal, environmental etc. The management structure is lean and the bosses do not take home big fat fees like Genting boss. At bad years, the directors voluntarily forego their bonus and pay rise.
For new projects, the team is even more conservative. They would look into all possible risks for each project and try to find ways to mitigate each risk whether it is equipment risk, technical performance risk, accidents, country risk, counterparty risks, legal issues, environmental issues. When they finally agree to a contract, you can rest assured that all the risks are well covered and the investment is secured.
Just like when they bought into PowerSeraya, the timing was right when Temasek was desparate to sell and the electricity market was good. The acquisition was good otherwise no banker would lend to them at the time when Lehman's Brothers just collapsed and the world economy was going into recession. That showed to me that banks and bankers had high confidence that YTL would deliver and PowerSeraya would be able to serve its debts.
When YTL Power wanted to buy into the troubled Hyflux power plant, it sent me a signal that they knew the timing was right again to strike, meaning that they believe the market conditions in Singapore would be good again and they would make back money very quickly.
2022-04-23 21:02
I am confident that YTL Power will be able to declare higher dividends as soon as this FY2022, given that things are getting better in Singapore and they have received a good handy cash of RM3.05 billion from the disposal of Electranet.
I would prefer them raising the annual dividends going forward rather than a one-off special dividend. Save half or RM1.5bn for future projects, the remaining RM1.5 bn cash may be used to raise up dividends by 2 sen to 5 sen every year for the next 5 years.
When dividends are raised to 10 sen per year in next 2-3 years, I do not see any reason why share price will not go back to previous level of RM1.50-1.60 as in 2015-2016 when dividends were 10 sen.
2022-04-23 21:08
There are three water utilities companies listed in London stock exchange: United Utilities, Svern Trent and Pennon. They are trading at PER of 20x to 36x, dividend yields of 4.67%, 3.35% and 3.23% respectively, and 1.27x Regulatory Capital Value (RCV), 1.42x RCV and 1.488x RCV. Therefore, it is not a dream for Wessex to be listed at 1.5x to 1.6x RCV considering it being a top ranked water company in the UK.
2022-04-24 17:44
Dragon328, great sharing!
In actually took me two separate readings over two days to finish your analysis and all the comments here. I think this blog could serve as a good placeholder for serious discussion on this stock.
I have two concerns, which I believe we briefly discussed some time back. I wonder whether you've factored into your projection.
Wessex Water - The allowed regulatory return for 2020-25 has been reduced. I got the impression in your analysis that it was due to the low interest rate environment then. Therefore it may revise upward in future periods if inflation goes higher.
However as mentioned in the CIMB Apr 22 report (page 3), "UK (Ofwat) has determined for Wessex Water will cut average bills by 13.0% in real terms in the 2020-25 period". It seems that the regulator also keeps increaing the standard, and Wessex Water has to continuously raise its efficiency just to stay in place.
Even though the RAB continues to build up, Wessex Water needs to strive very hard just to maintain its profits.
Selling RE from Kulai solar farm to Singapore - In late 2021 Malaysian government banned renewable energy export to Singapore. So the company, probably with the help of the Johor state, needs to get the federal government to lift the ban for the venture to work.
Then today I read in the paper that Johor Chief Minister talked about setting up data centers in Johor powered by renewable energy. It suddenly strikes me that could it be connected to the earlier ban. Could that Malaysia want to keep its renewable energy (solar farms require large amount of land, a precious commodity in Singapore) to develop data centers as alternative to Singapore?
Of course nothing may stop YTL Power from developing both solar farm and data center in Johor. However it will then be difficult to make any profit projection as the situation is so fluid.
Look forward to your opinion on these two points.
2022-04-26 00:52
Hi Observatory, good to hear from you in this forum. Let me try to provide some thoughts on your two concerns:
(1) Yes Ofwat has determined that for the 5-year determination period, the tariffs for Wessex will be lower than previous 5-year period on lower interest rates and higher performance standards. We can see that earnings contribution from Wessex to YTLPI has dropped from above RM200m per quarter in 2019 to now about RM150m per quarter in 2021. But there are a number of ways that enable Wessex to maintain similar dividend payouts as in previous 5-year period:
(i) to continue outperform peers in Ofwat ranking and get bonus payments which may be 3% - 5% of revenue or 15-25 million pounds
(ii) to get various grants in its business segments, for example Wessex received a total of 7.747 million pounds in FY2021
(iii) disposal of non-core assets, eg. disposal of assets raised cash of 8.9 million pounds in FY2021
(iv) to raise more debts to cover planned capex, eg. Wessex raised new debts of 395 million pounds in FY2021 compared to planned capex of 246 million pounds
(v) to use innovative ways and technology to help reduce capex but maintain performance and quality of service
Anyway it was disappointing to see a lower tariff determined by Ofwat in early 2020. I think water companies will fight for higher tariffs come 2025 for the next 5-year period of 2026-2030, given that interest rates will have increased a lot and each has higher regulated asset base then. We may see a quantum jump in earnings from Wessex from 2026 hopefully.
2022-04-26 10:13
The other way to quickly raise funds for Wessex and for YTLPI would be for YTLPI to list up certain stakes of Wessex on London stock exchange. As I pointed out earlier, the 3 listed water companies there are trading at 1.27x to 1.488x RCV. So if Wessex issued say 20% new shares for listing at 1.5x RCV, then equity valuation would be about 3.0 billion pounds and Wessex would raise cash of 600 million pounds to fund its capex for next 4 years and to pare down debts. YTLPI might list up another 10%-20% of its stakes in Wessex to take home cash of 300-600 million pounds to realise part of its investments at a premium now. YTLPI might buy back Wessex shares should it trade at lower valuation in later years. For instance, the listed water companies there have seen their share prices fluctuating in a 50% range, or -30% to +20% range. Let the market determine its value and YTLPI being the major shareholder and long term investor may just add stakes while its valuation is low and sell a little more if valuation is high.
2022-04-26 10:21
On your second concern, Malaysia government might have its considerations in issuing a temporary ban of renewable energy export as it might want to raise the renewable energy mix in the country power generation to a higher level by 2035.
But sunlight is free and abundant and land is still cheap to make solar energy very affordable here. There are many developers small and big trying to get into renewable energy sector, taking clue from the over 100 bidders in the last round of large scale solar power bidding by Energy Commission. There is no reason why renewable energy should be banned further if domestic renewable energy projects are plenty and many developers here are pushing for solar energy projects including rooftop solar installations.
As the Singapore power import project is real (and sizable and lucrative) and it has attracted many international developers to participate, as far as an Australian consortium planning installing mega solar farm in Darwin and pulling an undersea cable of few thousand km to Singapore. This tender is open to all Malaysia consortium including Tenaga, Malakoff and any company linked to the Johor royal family. Therefore, there is no reason why Malaysian government would ban such bid attempt by a Malaysian consortium to participate in this tender and export renewable energy to Singapore, as it will create new jobs here, encourage good use of land in Johor and development in surrounding areas and enable the Malaysia company to make good money and bring in foreign money. How fast these local companies and Singapore government can lobby our government to agree to the power export to Singapore, I am not sure but good projects like this will come to fruition sooner or later.
As for data centre development, it is a different game from the power export to Singapore. Building data centre in Johor is a no-brainer winning strategy as I have explained in the article the electricity price difference between a solar farm in Johor and in Singapore. Obviously Johor Menteri Besar saw the opportunity too and hence local companies to set up data centre in Johor powered by renewable energy. This is going to be big and going to be the new game of the year.
2022-04-26 10:37
Dragon328, thank you for sharing your opinions.
I'm not sure if YTL Group is keen for its subsidiaries to have own listings. That would have introduced another layer among the listed entities. I also feel that even with subsidiaries listed, investors may continue to assign a hefty discount at parent level. The Genting group is an example (of course, not helped by investors' corporate governance concern)
Data centers will be a good business to get in. In China the central government designate certain poor provinces like Guizhou as priority data center areas, to help them to leapfrog their development. In Malaysia analysts like TM and Time as data center plays. However while we may have cheaper RE, Singapore has advantages in terms of larger MNC base, international fiber connectivity, talents and so on. Johor and the federal government need to up their game if they want to grab a slice of the market from Singapore to JB.
2022-04-27 01:24
Observatory, whether YTL Group wants to have separate listings for its subsidiaries will depend on whether it will create value for the shareholders. If it can list up a subsidiary at a premium valuation to its own, it will be able to unlock value of that subsidiary. And it will be pure cash proceeds coming in from monetising part of its stakes in subsi. Another advantage of listing up subsi will be that the listed entity will be able to raise funds for own expansion, i.e YTL Hosp REIT listed in Bursa. If the subsi is listed in a foreign stock exchange, it will bring in foreign money and raise its status as an international company, i.e. YTL REIT listed in SGX that can raise funds in Singapore dollars to acquire under-valued assets in Singapore or regional with SGD.
2022-04-27 10:55
Once a subsi is listed, then there are more options for YTL group to explore and to unlock further value. It can inject other unlisted asset within the YTL group into the listed entity to unlock value, eg. YTL injected its Australia Marriot hotels into YTL Hosp REIT and may inject its huge landbank of Niseko Japan into the same once the latter achieves steady earnings.
2022-04-27 10:58
Once a subsi is listed, the share price of the listed entity may fluctuate and may trade at very low valuation for a certain period. That gives opportunity for YTL to buy back some shares lower than the price it was listed up. For instance, in my suggestion for listing up Wessex at 1.5x - 1.6x RCV, YTLPI would be able to buy back some shares of Wessex should it trade at low valuation close to 1.0x RCV at times of high interest rates or when stock markets are in a bear market. That would create another value from the same asset from just listing up at a premium then buying back at a discount. You need to know that this would be so much easier to create value rather than waiting long time for another good assets at distressed sale.
2022-04-27 11:02
Another good example for when YTL took private YTL Cement few years back when YTL Cement was trading at a low valuation, then later injected it into the listed MCement for RM5.2 billion, taking home a cool RM2.0 billion cash while increasing its stakes in MCement to 77%. You see from this exercise, what has YTL gotten from the same asset? It has got a handsome extra cash of RM2.0 billion, and unlocked value in YTL Cement, a raised stake in the listed MCement that is much larger and profitable now, while still maintaining a dominant market share in the local cement market.
2022-04-27 11:06
What I am saying is that YTL is not shy of doing deals that create value for the shareholders, and the family is the largest shareholders of YTL and YTL Power. It is always their interests to create more value for YTL and YTLPower.
Now what's wrong with listing up Wessex? Just losing a minority stake in this regulated asset, but it would still control majority share. The benefits of listing Wessex overwhelmingly outweight the disadvantage. First Wessex would be able to raise funds to fund its capex and maintain high dividends, secondly YTLPI would get back some handsome cash to unlock value, thirdly it would give a proper value to Wessex so that investors know how much it is worth to YTLPI and will not undervalue YTLPI at current depressed level, forthly it would provide options for YTLPI to buy back some shares in Wessex at much lower value when stock market enters into a bear market and hence to create value from the same asset, eg. listing of 10% Wessex shares at 1.5x RCV now and buy back later at 1.0x RCV would nett a cash difference of close to RM1.7 billion for YTLPower. Fifthly, listing up Wessex would force Wessex management to be more transparent and to work harder to improve company performance as it would come under scrutiny of a wider group of investors rather than just monitoring from YTLPI directors.
2022-04-27 11:15
I understand that even if a subsi is listed, investors will still give a holding company discount to YTLPI but the discount will not be ridiculously big. Investors and analysts will be able to know exactly markets value each subsi and at most they will give a 30% discount for holding company.
For example, if Wessex was to be listed at 1.6x RCV or an equity value of RM18.7 billion, then a 30% discount would give a value of RM13.1 billion to YTLPI or RM1.59 per share of YTLPower. Now look at how much value CIMB analyst gives on Wessex to YTLPI - just a pathetic RM4.9 billion or an almost 75% discount to what could be worth RM18.7 billion.
2022-04-27 11:21
And even more riduculous is for Maybank analyst to give zero value to PowerSeraya, the second largest power company in Singapore, just because PowerSeraya has made a few quarters of losses.
The analyst obviously does not understand the electricity market in Singapore and has no idea how much PowerSeraya would be able to make in coming years. Even if it made some small losses in past few quarters, but operational cash flows were still positive after adding back depreciation charges.
At least the analyst should give a value close to its net asset value or shareholders' value which is over SGD1.0 billion.
2022-04-27 11:28
As for the data centre potential, no doubt Singapore has a bigger MNC base than Malaysia, but YTLPI has addressed this by pulling a fibre cable from Kulai to Singapore so that the MNCs based in Singapore will have no issue of linking with their data centre in Kulai. Johor Menteri Besar knows that well too as Johor has land closest to Singapore to grab a pie of the huge business potential.
2022-04-27 11:39
10bagger10, I understand that YTLP has already received the cash from the disposal of Electranet. That is when I saw its net debt reduced by over RM2.0 billion as of 30 June 2022
2022-12-09 19:41
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dragon328
ValueInvestor888, true that Singapore government is smart and they were very smart in 2013 when they brought in LNG into Singapore market and crashed the elctricity supply market pricing. But the utilities companies in Singapore have been taken over by international investors like YTL Power and China / Japanese owners, and they are not stxpid. All have learnt the mistake of signing up too much LNG in 2013 and suffered poor generation margin from 2014-2020, and they will not make the same mistake twice next year.
2022-04-22 15:24