We view its proposed disposal of associate ElectraNet a positive move as YTLPOWR will net a sizeable disposal gain of RM2.24b which can be used for asset expansions especially during these trying times. Meanwhile, we believe the market is still under-appreciating its improved outlook despite both PowerSeraya and YES consistently delivering improved results. It remains OP with an unchanged TP of RM0.89.

Disposing ElectraNet for AUD1.026b... Yesterday, YTLPOWR announced it is selling its entire 33.5% in associate company, ElectraNet Pty Ltd to Australian Utilities Trust for a total consideration of AUD1.026b, or c.RM3.057b based on the prevailing forex of AUD1.00:MYR2.98. YTLPOWR bought the 33.5% equity stake in ElectraNet, the high volage electricity transmission system operates in South Australia under a 200-year exclusive lease granted by the Government of South Australia, in Dec 2000 for AUD58.5m or c.RM122.9m (AUD1.00:MYR2.10). The disposal is expected to conclude in 2QCY22 which will be reflected in its 4QFY22 financial period.

…with disposal gain of RM2.24b. We are positive with the divestment as the selling price is at a premium of c.AUD767.8m to the carrying value of AUD258.2m based on YTLPOWR’s FY21 audited account. Besides, from data available in YTLPOWR annual reports, ElectraNet had not paid dividend to YTLPOWR over the last three FYs after regular payout from FY14 to FY18. Therefore, this could be a good timing for YTLPOWR to monetise its investment. In all, YTLPOWR is expected to book in RM2.24b disposal gain from the transaction. However, it is unlikely to declare special dividend given that it has earmarked RM2.72b or 88.8% of the total proceeds for future investment over the next three years.

More M&As from now? With RM2.72b cash in hand, we believe YTLPOWR will continue to look out for new investment and in the past, the YTL Group have always expanded during economy downturn. For now, YTLPOWR is still awaiting the completion of Tuaspring acquisition in Singapore, the COVID-19 affected COD of Attarat Power Plant in Jordan and PT Jati of Indonesia pending for financial close. Going forth, we remain positive on YTLPOWR given the turnaround in PowerSeraya while YES is expected to see improving results from better economies of scale from higher subscriber base. Meanwhile, we keep our forecast unchanged as the expected disposal gain is one-off and will not affect our core earnings forecasts.

Improved outlook is under-appreciated; maintain OP. We are positive with the disposal which is priced attractively and the disposal proceeds can be utilised for other investments. On the other hand, we believe the market is still under-appreciating YTLPOWR’s improved outlook as the turnaround in PowerSeraya since 1QFY21 is sustainable while YES has shown consistent improvement in the past one year. As such, we still rate the stock an OP with an unchanged TP of RM0.89, based on 20% discount to its SoP valuation. We keep our TP unchanged as the disposal is not completed yet. In addition, the stock is supported by above average dividend yield of >8%. Risks to our call are (i) losses at YES worsening, and (ii) PowerSeraya failing to stay profitable.

Source: Kenanga Research - 9 Feb 2022