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YTL Power Q3FY2022 - Better Outlook in Singapore and Increasing Dividends

dragon328
Publish date: Thu, 26 May 2022, 11:35 PM
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Q3FY2022 Quarterly Result Summary

YTL Power announced a decent set of results for Q3 FY2022 with reported net profit of RM977 million, 7.5x higher than last year correspondence period. This is mainly due to the recognition of a one-off gain from the disposal of Electranet offset by a number of allowances for impairments.

RM million

Q3FY2022

Q2FY2022

Q3FY2021

Revenue

4,671

5,134

2,636

Operating costs

(4,419)

(4,596)

(2,072)

EBITDA

541

538

564

Depreciation & Amortisation

(289)

(313)

(222)

Fair value loss & Allowances for impairment

(371)

0

0

Other Operating Income

1,351

0

(31)

EBIT

1,231

225

342

Finance cost

(251)

(229)

(240)

Share of profits

57

81

98

Profit before tax

1,037

76

169

Taxation

(60)

(34)

(39)

Net Profit

977

19

112

 

 

 

 

 

Other operating income was mainly from the disposal gain of Electranet, while the company also booked in a fair value loss of RM81.2m and allowances for impairment of RM290.2m during the quarter.

As can be seen above, EBITDA was steady at RM541 million vs Q2FY2022 and Q3FY2021. This is encouraging as the lower earnings in Wessex Waters was well covered by a timely rebound in PowerSeraya earnings, as shown in the table below.

 

A summary of the segmental breakdown is tabulated below:

RM million

Q3FY2022

Q2FY2022

Q3FY2021

Revenue

 

 

 

Multi-utilities

3,453

3,864

1,468

Water & sewerage

1,011

1,026

910

Telecommunications

116

161

156

Power Generation

0

0

62

Investment Holding

91

83

40

Total Revenue

4,671

5,134

2,636

 

 

 

 

Profit before tax

 

 

 

Multi-utilities

135

66

14

Water & sewerage

89

137

145

Telecommunications

(86)

(27)

(16)

Power Generation

(5)

9

(6)

Investment Holding

904

(17)

(61)

Total PBT

1,037

169

76

 

The Multi-Utilities business registered a good rebound in profit before tax due to better pool prices and retails margin achieved by PowerSeraya.

The Water & Sewerage segment recorded a drop in PBT mainly due to seasonality impacts on water supply and sewerage treatment revenue.

The higher loss registered by the Telecommunications segment was due to lower project revenue recorded during the quarter.

 

Cash Flows for 9M FY2022

YTL Power registered strong operating cash flows of RM1,682 million for the first 9 months of FY2022.

                                                                        RM million

Cashflows from operating activities               1,682

Interest paid                                                    (714)

Payment to post-employment benefits          (122)

Tax paid                                                          (66)

Dividend, grant & interest received                302

Repayment of lease liabilities                        (111)

Total cashflows before capex                         971

Total cashflows before capex amounted to RM971 million for the first 9 months of FY2022, annualized to RM1,295 million or 16 sen per share.

With the sale proceeds from the disposal of Electranet, YTL Power was able to pare down borrowings by RM2,436 million from RM30.1 billion to RM27.8 billion as of 31 March 2022.

 

Increasing Dividend Payouts

YTL Power declared an interim dividend of 2 sen in Q3 FY2022. With the strong operating cash flow of approximately 16 sen per share for FY2022, we can probably expect a final dividend of 5.0 sen to be declared at the final quarter ended 30 June 2022, bringing total dividend for FY2022 to 7.0 sen per share.

At current share price of 77 sen, YTL Power will be trading at a dividend yield of 9%, much higher than its normal range of 6.0%-7.0%. I would expect its share price to gradually move up towards RM1.00-1.10 in next few months after it declares the final dividend.

 

Improving Prospects

I had earlier projected that PowerSeraya would register a profit before tax of SGD171-371 million or RM530-1,150 million a year. As reported in Q3FY2022, PowerSeraya recorded a profit before tax of RM135 million, annualized to RM540 million which is at the lower end of my earlier estimated range. I believe the electricity supply market in Singapore is getting tighter moving into 2023, so there is a good chance that generation and retails margin will improve further next year, hence I maintain same projections for PowerSeraya.

My earlier projected PBT for Wessex was RM387 million for the conservative case. Wessex registered a PBT of RM89 million for Q3FY2022, annualized to RM356 million not too far from the conservative case, hence I maintain a fair value of 1.6x RAB for Wessex or or an equity value of RM18.7 billion.

We will continue to wait for progress from Jordan power plant, Green Data Centre Park in Kulai and potential export of electricity to Singapore as next catalysts. Also the recently awarded digital bank licence will contribute substantially to future earnings of YTLPI. Meanwhile, YTLPI’s Yes is the first telco to roll out 5G services in the country and will help turn around the telecommunications segment very soon.

I maintain a valuation of RM3.93 to RM7.55 per share for YTL Power in the long run based on sum-of-parts valuation as derived in my earlier article:

https://klse.i3investor.com/web/blog/detail/dragon328/2022-04-22-story-h1621549755-YTL_Power_is_potentially_a_10x_Bagger

 

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observatory

@Dragon328, thank you for the quarterly result analysis.
I have a few questions.
1. What is the meaning of "pool prices" in the Multi-Utilities business?
2. PBT for Water & Sewerage segment dropped due to "seasonality impacts". However, YoY PBT decline is even greater than QoQ (from RM145m in 3Q21 to RM89m in 3Q22). Unless the seasonality is not based on 12 month period?
3. The RM86m loss for telco segment is the largest loss over the last 8 quarters covering the entire pandemic period. This is not a good sign. Besides, as expected , Maxis Digi Axiata U Mobile are still dragging their feet despite cabinet decision to maintain the Single Wholesale Network. The dominant players won't let challengers like Yes to have an easy time. I fear a lot more capital has to be sunk into Yes until it can turn profitable, or better still, sold to one of these incumbents.

1 month ago

dragon328

@Observatory, let me try to answer your questions one by one:
1. The Multi-Utilities business means PowerSeraya business in the competitive electricity market in Singapore. There is an electricity pool market in Singapore where generating companies bid their offer price and quantity of electricity into and buyers buy electricity from. In Singapore, the electricity pool clears the electricity prices based on the bids from generating companies and total demand from buyers every 30 minutes. Some other markets in other countries clear the price every hour. When the supply is tight, then the pool will clear an electricity price very high. When there is oversupply, then the pool price will clear low. Generating companies whose bids get matched with demand will get paid the pool price cleared for each 30 minutes, and buyers will pay the same price to the pool operator who is a clearing house.

1 month ago

dragon328

2. Seasonality impacts on water supply & sewerage revenue? I am not entirely sure what it means, but I suspect it has to do with the water consumption patterns in different seasons in Wessex. It is also affected by any new contracts awarded to non-household retail market, any new housing projects during the season, and the timing of embarking on certain water infrastructure projects. Profitability is affected by any subsidy in the installation of water meters and timing of claim for any new capital projects. Not 100% sure but that is my understanding.

1 month ago

dragon328

3. The RM86m loss from the telco segment is discouraging. The company said it was due to lower project revenue recorded, which I am not sure what it means.
On the 5G business, I read that the government has just agreed on equal stakes in the DNS with the 3 major telcos. But this has not actually deterred YTL Yes from rolling out its 5G services and Yes is the first telco to roll that out. Feedback to me indicated that Yes has got encouraging response to its 5G business and new subscribers have increased by hundreds of thousands since its launch.
As to how much more capital to be sunk into this 5G business, I do not expect much other than YTL's subscription to the equity stake in DNS. While other bigger telcos are trying to grab a bigger stake in DNS, it is not much left for YTL to subscribe anyway.
As to how this equity game will pan out and will affect the 5G business, I do not know but I would expect still equal assess to the 5G network, hence YTL Yes will not be disadvantaged anyway.

1 month ago

dragon328

Frankly speaking, I would also prefer YTLPI to divest at least some stakes in its telco business which has been dragging down its bottom line for years. Now there is a good chance for the telco segment to turn around with the 5G roll-out, it makes more sense now to monetise part of the investment in this 5G business. I think some Korean or Japanese telcos would be interested.

1 month ago

observatory

Thank you for replying. I've read several analyst reports. The general consensus is 3QFY22 results is disappointing but Buy calls are maintained.

Maybank/ CIMB/ RHB/ HLIB say 9MFY22 results achieve just 30%/ 31%/ 43%/ 61% of their FY22 full-year forecast. They have expected more.

We've discussed about the weaker performance of YES and Wessex. However Maybank has also highlighted "higher investment holding losses and lower-than-expected associate contribution". So I took another look.

As your table has shown, the investment holding segment for Q3 records a PBT of RM904m. But the Electranet disposal gain was about RM1.3b (according to Hong Leong). Assuming the RM1.3b gain is pre-tax, it implies Investment Holding segment core PBT = RM904m - RM1.3b = about RM400m loss. The loss is quite substantial as past two years quarterly segment PBT is within the range of RM39 profit (4QFY21) to RM65m loss (1QFY22).

One reason cited by Maybank is "Associate income trended lower QoQ, possibly due to Jawa Power".

Jawa Power is a 57.1% owned subsidiary (Maybank considers it as associate). Based on annual reports, between 2017 to 2022, Jawa Power contributes about RM300m profit annually. So a weak performance at Jawa Power alone cannot explain the quarterly RM400m loss, unless Jawa Power has recorded a loss this quarter.

There could be other reasons that drag down Investment Holding segment performance. What do you think?

1 month ago

dragon328

@Observatory, I also feel that the March quarterly result was a little below expectation. One culprit was Wessex Waters contributing less earnings but it was well covered by a rebound in earnings from PowerSeraya.
Another weak link was in Yes telco segment that recorded higher losses, I hope the 5G venture will help turn around this segment soon.

1 month ago

dragon328

The investment holding segment should have recorded some losses after striping out the disposal gain of Electranet. I am not sure of the quantum of losses and where these came from.
I suspect part of the losses could be for corporate social responsibilities. Another possible source of losses might be from Jordan project which is suspended pending an arbitration court case, incurring project costs at site and legal expenses for the arbitration case.
Jawa Power might have contributed lower earnings during the quarter, not too sure

1 month ago

observatory

My impression is CSR spending is/ was mostly for YES which falls under telecommunication segment. I wonder if the management could take the opportunity of the Electranet one time gain to do some impairments of other projects. However it's not mentioned in the quarterly report.

1 month ago

dragon328

I think the management might have made some impairment loss on Indonesia Tanjung Jati project since the new coal project will unlikely get financing as international lenders focus on renewable projects.
I suspect there was some impairment loss taken on Jordan project as it has been sort of stalled for several months pending the arbitration case. I won't be surprised if they have done that in Q3. They may be able to write it back as and when the Jordan project resumes.

1 month ago

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