cahsflows wise it will be more straightforward. It will be just cash coming in, even half of PPA payments may be just enough to service the debts

@bullrun2025, if Nepco only pays half of the PPA payments to YTLP Jordan Power, then the other half may be classified as trade receivables and get capitalised in the balance sheet, while the full payment is recognised as profits in the P&L. This is one way of accounting treatment.

On the other hand, if the other half payment is no way in sight of receiving from Nepco, then Jordan Power may not recognise the full PPA payments as revenue in the P&L and hence will book in some losses as its operating costs are more than half the PPA payments.

@Johnzhang, glad that you still have strong conviction in Bplant fair value of above RM2.00.

To be fair, either its 9,000+ ha of strategic landbank (which is conservatively valued at RM4.00 psf) or its 63,000+ ha of plantation estates (which is conservatively valued at RM70,000 per ha) alone should fetch over RM4.0 billion valuation or over RM1.80 per share.

cannot find any news, could be some deal involving Niseko land bank or a corporate deal involving the listed shares in Japan

@goody99, you may probably be right, as I am also looking at around 6 sen EPS for Q4 partly due to your 2 reasons above.

As interest rates got raised by another 0.5% in the past quarter, I suspect there may be more provision in Wessex' index-linked bonds.

Jordan power as you mentioned might incur some start-up costs as the 2nd unit was commissioned. Furthermore, recent news suggests that Nepco had only been paying half of the fees recognised in the PPA.

Zhuge_Liang, I am looking at Genm, Genting, Bonia and Padini besides YTL & YTLPower.

I think the first 2 may have more meaningful rebounds after the state elections.

Bonia and Padini are good consumer plays, both at net cash position and have strong operating cashflows.

thanks bullrun2023. That is about 9% increase as approved

@bullrun2025, what is this 504 pounds with Wessex?

Finally a take-over of BPlant is happening 15 months after my suggestion in this article, coming too late?

@moncmondo87, yes it will then down to which plants having a lower BTU/kWh which depends on the efficiency of the plant itself and the fuel cost.

I suspect even when Keppel new gas plant comes online in 2026, it will not be much more competitive than existing CCGTs as hydrogen fuel will still be more expensive than LNG then.

However, everything is relative in Singapore competitive market, whether or not PowerSeraya has secured cheap LNG prices for next 3 years. If other major players like Senoko and Tuas have also secured LNG prices at about the same price as PowerSeraya, then it won't make much difference in 2025-2026 as to how much LNG prices will be. Everyone will then be still on level playing ground, and the situation will come back to the tight market conditions again to determine the retails margin and wholesale electricity prices.

Until a new generating plant comes online in 2026, the supply market will remain tight.

Hong Leong report mentioned about potential dividend of 15 sen per share for YTLPower for FY2024 and FY2025, guided by YTL chairman's forecast of RM1 billion dividend for YTL for FY24 & FY25. This is in line with my earlier calculations.

The report mentioned about PowerSeraya having secured cheap LNG supply for next 3 years. I am a bit wary of that, especially on the definition of "cheap". If the company secured it during the trough period of COVID in 2020-2021, then the LNG price then can be considered cheap and would cover generation for the 3 years to 2023-2024. If the company secured it after gas prices had recovered in 2022, then it might run some risks as crude oil and LNG prices may fall below its secured price in 2024-2025.

Anyway, for whatever LNG price it has secured, PowerSeraya should have hedged it against the retails contracts for next 2 years, ensuring good retails margin. The challenge may come in after the expiry of the 2-year retails contracts if LNG prices then drops significantly below its secured price.

@stockprincess, got the HL report, thanks

Apparently this Star article was reporting a research report from RHB on YTLPower. Has anyone got this RHB research report? Please PM me, thanks.
Posted by xiaochen > 3 hours ago | Report Abuse

Earnings of utility firms likely to be sustained
This could potentially ensure higher dividend payout for YTL Power (given the stronger profits and cash flow) to 15 sen a share (yielding 11.9%) in financial year 2024 to 2025 versus the house’s conservative assumption of only eight sen a share.
https://www.thestar.com.my/business/business-news/2023/07/11/earnings-of-utility-firms-likely-to-be-sustained

FY2024&25
YTL 9.5 sens
YTLP 15 sens

that's right @probability.

When I first saw the news of these super rich people trying to bring in RE power all the way from Australia via some 5,000km under sea cables, I thought the project would be doomed to fail. Indeed, it did not take off as it did not make any business sense at all.

Where else can you bring in RE power to Singapore cheaper than from Peninsular Malaysia especially from Johor where you can just pull over a 50km overhead transmission line??

@hng33, it is typical of local analysts being slow in doing a drastic upgrade, as it will slap their own face. To me it is okay for CIMB to retain its projected 6 sen dividend for FY2024 and FY2025 and tp of RM1.28. They will have to see substantial earnings improvement in coming quarters before they will convince themselves of what Tan Sri Francis Yeoh was saying on prospects of higher dividends.

In particular, I am excited to see how YTL is going to unlock value of its vast assets in coming years.

@ValueInvestor888, EPF ceased to be a substantial shareholder (stake <5%) in YTLPower on 30 May 2023 so it is not required to make Bursa announcement since then. So we don't know if it is selling anymore. But looking at the selling volume and patterns in YTLP shares, I think EPF is still selling consistently at 20% to 60% of daily volume.

@ChloeTai, right, it is hard for YTLP to jump fast now as EPF is still selling. As it had some 400 million shares last month and assuming it sells on average 4 million shares of YTLP a day, it may still have 320 million shares after 4 weeks of selling.

My estimate is that EPF's stake in YTLP will drop to below 200 million shares by mid August and it will be less aggressive in selling then.

@xiaochen, in the article you shared earlier, it says the average household water bill is around 448 pounds a year or 37.33 pounds a month.

And the proposed 20%-30% rise in water tariffs seems to be for a 5 year period from 2025 to 2030, not a one-year increase.

Wessex got an average rise of c.8% in water tariffs for FY2024, and got a lower rise of c.4% for FY2023. Actually a 8% rise in one year is exceptional, it only happens when the inflation hits double digit in the UK in 2022-2023.

So, a 30% rise for 5 years, i.e. 6% rise each year from 2025 will not be too excessive. It will add about 2.20 pounds a month to household water bill, and won't cause a dent.

@xiaochen, the water bill in the UK is just about 10% to 15% of the total household utilities bill, just like here. We pay about RM15-20 for our water bill every month while paying RM150-300 for electricity bills. There in the UK, water bill may be just around 10-15 pounds a month but household gas and electricity bills may run into 200-500 pounds a month. So the issue of water tariff increase is never a big issue compared to gas and electricity rates.

Thames Water is an isolated case where the holding company holds too much debt of 14 billion pounds until it has problem servicing it. Wessex Waters does not have any debt at the holding company level, all its debts sit at the operating company level and ring-fenced. Wessex gearing ratio is comfortable and has no issue of servicing its debts from operating cashflows.

Correct, YTL will need to preserve some cash to do MRT3 and HSR if it wins them. YTL can declare dividends received from Mcement and YTLP as dividends totalling RM1.0 billion, then reserve the dividends from 2 REITs and construction division for future projects. Potentially YTL could monetise some more peripheral assets if necessary, it just sold a piece of land in Perak for RM70 million.

For YTL to pay RM1 billion dividend, it will need to get some RM600m dividends from YTLPower and RM300m from MCement. So YTLPower will need to pay out RM1.2 billion worth of dividends or 15 sen per share.

As calculated before, YTLPower operating cashflows will be strong at over RM3.0 billion a year for next 3 years, so easily supporting a 40% payout or RM1.2 billion a year.

PowerSeraya cashflows will be higher at S$763m + S$75m (depreciation charges) = S$838 million.

At 7% cashflow yield, PowerSeraya is valued at S$838m/7% = S$11.97 billion.
For a dividend payout of 70%, dividend payouts may be S$587 million a year, at 5% dividend yield (which is very attractive in Singapore) will value PowerSeraya at S$587m/5% = S$11.73 billion.

Whichever way you value it, PowerSeraya is easily worth over S$10.9 billion or RM37.7 billion, if it gets listed in next 3 years.

It would be an opportune time for YTLP to list up PowerSeraya in next 2-3 years as earnings are expected to remain strong.

At Mar 2023 quarter earnings of S$230 million pretax profit, annualised to S$920m PBT or S$763m net profit, PowerSeraya may potentially be worth S$763m x 14.3x = S$10.9 billion. I am taking the average PER of Sembcorp and Keppel which are currently trading at PER of 14.1x to 14.5x.

Hence, PowerSeraya may be worth RM37.7 billion at current exchange rate of S$1.00 = RM3.46. That would be fantastic valuation of RM4.67 per YTLP share.

Wessex + PowerSeraya will give a valuation of almost RM2.35+RM4.67 = RM7.00 per share to YTLPower. Sounds crazy huh?

Let's see.

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

Pls refer to the article again for calculation of Wessex valuation and PowerSeraya should YTLP decide to list up either of them

I reckon that YTL Power should consider listing of Wessex if it can get a valuation of minimum 1.3x RCV.

Otherwise, I would rather wait for another 2 years when UK interest rates will come down and Wessex RCV will increase to 3.89 billion pounds in 2025. Then it may get a valuation of 1.5x RCV or 3.5 billion pounds or RM20.8 billion or RM2.57 per YTLPower share.

Just checked again on valuation of the 3 water companies listed in the UK, United Utilities, Svern Trent and Pennon. Last May when I first calculated, these 3 water companies were trading at PER of 20x to 36x and at 1.27x, 1.42x and 1.488x RCV respectively.

The share price of United Utilities has been hovering around similar level since, while Svern Trent has come down by 10% and Pennon down 20%. This makes their valuation closer at 1.2x to 1.27x RCV.

Now assuming same valuation of 1.2x RCV, Wessex is potentially worth an enterprise value of 3.68 billion pounds (RCV) x 1.2x = 4.416 billion pounds. Minus off net debt of 2.315 billion pounds, the equity value will be about 2.1 billion pounds or RM12.5 billion or RM1.54 per YTLPower share.

Now the valuation of water companies in the UK has come down slightly due to higher interest rates (now 5.0% vs 2.1% last year), but pounds sterling has appreciated some 13.6% against ringgit in past few months to 5.94 now, partially offseting the lower RCV multiple.

At 1.3x RCV, Wessex is worth 2.47 billion pounds or RM14.7 billion or RM1.81 per YTLPower share.

At 1.5x RCV, Wessex is potentially worth 3.2 billion pounds or RM19.0 billion or RM2.35 per YTLPower share.

haha observatory, they have got world class bankers on their side. I was just suggesting some sensible things to do for YTL, am glad that they have listened.

@super911, YTLPower earnings drop since 2017 was due to:
1) fallout of earnings from Malaysia power plants after its PPA expired
2) PowerSeraya was making losses or minimal profit in 2017-2019 due to over-supply situation in Singapore and Gencos' over-contracting of LNG supply
3) start-up losses in Jordan Power
4) losses in Yes 4G-5G startup

@shpok4574, Wessex Waters recorded a pretax loss of RM47m in Q3FY2023, but there was a non-cash provision of RM75m related to interests on index-linked bonds. Stripping out the non-cash provision, Wessex should have registered a PBT of RM28m in Q3FY2023.

Its revenue for Q3FY2023 was RM987m so a c.9% rise in average water tariffs will increase revenue by RM89 million. Assuming no other non-cash provision and similar cost structure as in Q3, Wessex should register a pretax profit of about RM117 million.

However, as its Regulated Asset Base (RAB) has increased to a larger base as of April 2023, so theoretically the regulated revenue should be higher. And I am hoping for Wessex to be able to control costs to a lower level, and to achieve higher unregulated revenue through new projects. All in, I expect Wessex to register PBT of RM130-170m a quarter, if not in this June then in following quarters.

@moncmondo87, as you highlighted, the conitinued supply tightness leading to 2H 2026 will put more pressure on retails contract renewal in coming months, consumers are spooked with the spiking wholesale prices pushing them towards more steadily-priced long term retails contracts.

PowerSeraya does have spare capacity of some 1,000MW (registered capacity of c.3,500MW vs efficient capacity of 2,000MW) which are of lower efficiency types. These open-fired gas turbines and oil-fired turbines may serve as peaking plants to feed into the spiking wholesale prices during peak hours but may not generate a high % of generation output in terms of volume-weighted average.

With TPC to be in place from 2H 2023, we may expect similar number of occurrences of wholesale price spikes but each time the spike is capped at a price cap which is equivalent to 1.5x to 3x LRMC, estimated at about S$700-800/MWh max. This price cap is high enough to provide good margins to peaking plants.

Tuas' plants are not much newer than Senoko's and PowerSeraya's and they are of the same F-type CCGT (similar efficiency range), so Tuas does not stand much advantage in bidding into the pool. Again, the main battle ground is in the retails market (which Seraya has hedged over 80% of generation output against) and the current tight supply situation will continue to ensure each Genco to enjoy healthy margin in the next 3 years in the retails market.

Having 2 separate sites in Jurong Island (where original PowerSeraya plants are located) and in Hyflux does not offer much competitive advantage to PowerSeraya but the large scale does give substantial savings in terms of corporate overhead and operational staffs. For instance, the same preventive maintenance team can cover both sites and a slightly enlarged market operation team can cover all generating units in both sites, so the group shall enjoy lower overhead cost per MWh of generation.

@super911, the normal load dispatch factor for generating units in Singapore used to be 60% to 70% during normal supply-demand situation, but now due to tight supply, each generating unit especially the efficient CCGT needs to run at higher capacity during peak and non-peak hours and run with minimum maintenance downtime, hence a 75% dispatch load factor is more appropriate. They can run up to 80% to 85% max if necessary.

@super911, this 3,300 GWh is my estimated power generation for PowerSeraya in a quarter based on a total of 2,000MW of effective CCGT capacity and 75% dispatch factor:

2,000MW x 24h x 92 days x 75% = 3,312 GWh

CIMB in its latest research update report on YTLPower reiterates Buy with tp of RM1.70.

It states minimal impact from TPC on PowerSeraya assuming 10% exposure to the wholesale market and 8%-16% reduction in USEP under TPC.

I think CIMB has over-stated the wholesale market exposure. WHile it says PowerSeraya contracts 80% of generation outputs to retails contracts and 20% contracted under vesting contracts and wholesale market exposure, it has assumed 50:50 split between vesting contract and wholesale market exposure, hence the 10% assumption. I understand the current vesting contract proportion is about 16%-17% of total generation, so the exposure to the wholesale market is likely to be in the region of just 3%-4% for the June 2023 quarter.

Assuming 4% exposure to wholesale market and 8% reduction in USEP as per EMA simulation, the likely impact to PowerSeraya for the June 2023 quarter will be:
3,300 GWh x 4% x S$300/MWh x 8% = S$3.2 million

Maintaining a gross margin of S$80/MWh, PowerSeraya would have made a gross margin of:
3,300 GWh x S$80/MWh = S$264 million for the June 2023 quarter

So the impact will be 3.2/264 = 1.2%

In fact, there is still room for Padini to expand its presence locally. Now Padini stores are mainly in big cities and big shopping malls, hence only 133 stores currently in Malaysia. It has the potential to expand into 2nd and 3rd tier cities and towns, given its products are at affordable prices.

Considering that Watson can have 700 pharmacy retail outlets in Malaysia, why not Padini?

@cgtan2020, thanks for the EMA determination papers. I have taken a look and found nothing new that this forum has not discussed on.

It is interesting to read the comments and feedback provided by Gencos in response to this proposed TPC. In particular, PowerSeraya said that "We are of the view that in the long run, free market forces generally provide a more efficient and stable environment for the operation of wholesale electricity markets than with government intervention."TPC should not be a permanent feature of the Singapore Wholesale Electricity Market. It should be a temporary measure for a period 12 months"

Pacific Light commented: "We would like to highlight to the EMA that scarcity pricing is one of the key market mechanisms embedded in the energy-only market. It should be noted that (i) Gencos rely on it to recover losses or missing money incurred during downcycles which could last for years, and (ii) investors rely on it to gauge the need to build new generation planting moving forward."

The EMA should really take into considerations such feedback before trying to intervene the wholesale market too much.

AmResearch stated a 25% exposure to the spot market for PowerSeraya in its latest report, that is incorrect. Such 25% exposure may apply to Sembcorp, not PowerSeraya.

But I do not discount the possibility that PowerSeraya also sold more into the spot wholesale market in the April-June 2023 quarter, taking advantage of the spiking wholesale prices. But it will not be anything like 25%.

@super911, I forecast net profit of RM3.0-3.6b a year for YTLP, or EPS of 38 sen to 45 sen. Applying a PER of 12x (half of its 2-year average PER of 24x), I am targeting a price range of RM4.50 to RM5.30 in 2 years.

It looks crazy to many now, but lets see the June qtr result before you write it off.

@hng33, haha I do not want to be overly bullish. As long as PowerSeraya can maintain PBT of RM800m a quarter, added with normalised PBT of RM130-180m from Wessex and new income stream from Jordan power, then YTLP is on track to achieve total PBT of RM1.0 billion a quarter, annualised to RM4.0 billion PBT and RM3.0 billion net profit which will be within my earlier projected range of RM3.0b to RM3.6b / year.

Based on CIMB latest research report on Sembcorp today, Sembcorp has about 25% exposure to the spot wholesale market, and the projected impact on its net profit will be S$36m or 4.8% to its FY2023 earnings. PowerSeraya exposure to the spot wholesale market has always been lower than 3%, typically less than 1%, so the impact of TPC if any on PowerSeraya will be at worst 1%-2%.

There would be a 8.1% reduction in USEP due to the Temporary Price Cap (TPC) as predicted by the EMA. The latest average USEP has been high at S$400-500/MWh, so a projected 8.1% reduction in USEP will result in USEP dropping to an average of above S$400/MWh, still much higher than the prevailing retails contract prices of below S$300/MWh. So I see no impact on retails contract pricing and Gencos' margin.

@Zhuge_liang, I stand by my earlier projection. The latest temporary price cap will not have much impact, max 1% to 2% adverse impact, on PowerSeraya, though it may have slightly higher impact on Sembcorp.

UBS coming in at an opportune time when YTLP shares come under profit taking

@hng33, you have explained it very well. In short, volatile wholesale prices have little impact on PowerSeraya who has a vertical integrated structure that includes power generation and retailer arm. High wholesale prices affect the independent retailers who do not have generation arm to hedge against the cost, so they can easily go bankrupt when wholesale prices spike up like now.

@InvestMsia, to be honest I don't know, but based on past practice, PowerSeraya tends to hedge 99% - 100% of their generation output with its retailer, and not to game over short term price volatility in the wholesale spot market.

sentiment rules the day, but over longer term, fundamentals prevail...

@chessgame99, you didn't get my point on the vesting contract price. What I wanted to point out was that last time when the EMA conducted an industry consultation to try to review the methodology that derived the vesting contract price, they eventually did not make any change after getting feedback from the industry players. So they made sensible decisions.

The vesting contract price is determined every quarter based on prevailing gas prices and forex rates, and it was used to determine the electricity selling price that the incumbent retailer MSSL used to sell to small households in Singapore.

It has nothing to do with this round of changes on wholesale price cap, but rather it shows the EMA does get feedback from industry players before making sensible decisions.

@xiaochen, this is exactly my point. Based on EMA's simulation, the price cap will see an average reduction of 3.6% to 8.1% in USEP which is the headline electricity prices that spiked up last month. It will not impact the retail electricity prices which tend to be more long term of 6 months to 2 years duration. What the EMA is trying to address is the spiking wholesale prices or USEP that made headlines, not to curb retail electricity prices which have not seen any spike but in fact have been trending down following the weakening LNG prices.

There are many power experts in the industry that EMA can consult with. More importantly the CEO and chiefs of Gencos in Singapore are all veterans in this power industry. PowerSeraya is headed by a CEO who has over 30 years of experience in this field. I am confident they know how to play this game and provide proper industry feedback to the EMA in order to achieve some outcome that is win win for all.

@chessgame99, Singapore government can install the most efficient CCGT in Singapore but the question is how they are going to run the business and sell electricity to consumers. The key question is whether the government itself should get into this power business and disrupt free market rules. If they do that, it will send a wrong message to foreign investors. I would imagine that it would be a tall order for Singapore to get any RE import by 2035 if they enter the market and disrupt market rules just like that. Who wants to commit any investment in Singapore to build any new capacity or bring in RE if foreign investors are spooked that Singapore government can anytime come in and disrupt market rules and make them lose out their investment capital. I think this is a serious question Singapore government needs to consider.

A few years back when oil prices were very high, a lot of consumers complained about the high vesting contract price (which was used as a benchmark price for MSSL to supply electricity to small household consumers). EMA then conducted a few rounds of industry consultation and finally they withstood the methodology used in deriving the vesting contract price. I think this round the outcome will be the same.