Singapore dollars strengthens to RM3.502 : SGD1.00. We can expect higher contribution from PowerSeraya in this Dec quarter and beyond

Haha I hope YTL could fly to RM1.70 again soon, but it may take time probably a few weeks

AffinHwang research also raises tp for YTLP from RM2.20 to RM2.70

As said before, I expected this Q1 result to beat most analysts' projection and to prompt upgrades from most analysts.

http://www.hlgs.hongleong.com.my/published/article/A-kMSS1-EOS9do-FB7LReb2O0pHzo_cPVFtoIjdu335ZDudPsl2pPWeXrk1djXENvyLwLERyfnr_BDi8LKrUU6vJwxcoiGlVhCOg0rHNTxk1

Hong Leong research raises tp for YTL Power to RM3.90!

@cgtan2020, the strong performance from PowerSeraya in Q1 FY2024 is well expected as I have explained earlier in numerous occasions. PowerSeraya gross margin is not directly affected by gas prices while its revenue is more directly linked to gas prices.

Its gross margin is mostly locked in retails contracts (that last from 6 months to 2 years) and vesting contracts. Retails contract margin is determined based on supply and demand, while vesting contract margin is determined by EMA every 2 years.

That's why I expect PowerSeraya strong earnings to continue into 2026 at least, then we shall see how the peak demand growth will be able to match the scheduled commissioning of Keppel new CCGT unit in 2026.

https://klse.i3investor.com/web/blog/detail/dragon328/2023-11-23-story-h-214219881-YTL_YTL_Power_Multiple_Growth_Engines_Firing_up

for your leisure reading

https://klse.i3investor.com/web/blog/detail/dragon328/2023-11-23-story-h-214219881-YTL_YTL_Power_Multiple_Growth_Engines_Firing_up

MCement reported substantially higher profits for the latest quarter, operating cashflows are strong. We can expect super good dividends in FY2024

https://klse.i3investor.com/web/blog/detail/dragon328/2023-11-23-story-h-214219881-YTL_YTL_Power_Multiple_Growth_Engines_Firing_up

YTL quarterly result is very good, powered up by YTL Power and MCement

https://klse.i3investor.com/web/blog/detail/dragon328/2023-11-23-story-h-214219881-YTL_YTL_Power_Multiple_Growth_Engines_Firing_up

Another excellent set of quarterly results from YTL Power

To the contrary of what was said above, the reason why Francis Yeoh was invited to an interview by Bloomberg was because of the huge interests of foreign funds in YTL and YTL Power shares

@probability, thanks for the video link.

As usual, Francis Yeoh did not give away much even when pressed by the Bloomberg journalists. We can see that foreign funds are pretty much interested to know about the growth potential of the YTL group, especially on KL-Singapore HSR project, 5G business expansion, green data centre, digital bank and potential M&A deals.

thanks for the update @probability

@probability, mind sharing the link for the interview?

Good morning, Mr. OTB.

Thanks for the link on Yahoo finance valuation on YTL Power. That shows clearly YTLP is under-valued based on DCF methodology, inline with what I have been saying about the strong cashflows of the company.

@chessgame99, as said before, I expect YTLPower Q1 FY2024 net profit to comfortably beat RM700 million. I hope it can reach RM800 million a quarter or RM3.2 billion for FY2024. That would justify a valuation of RM4.00 in 2024 based on 10x PER.

When to take profit? I don't know. My entry price is around RM0.70, I don't really care much about the paper gain really. As long as the company earnings and cashflows remain strong and there is continued growth, I see no reason in letting go of my holdings on YTL Power. As I expect YTLPower operating cashflows to be over 40 sen a share every year going forward, and dividend to be over 12-15 sen p.a., with my low entry cost, I will enjoy dividend yields of 15% to 20% p.a. for my YTLP holdings for years to come. That will beat any fixed deposit rates or bond yields, why should I sell then?

I just cite an example to illustrate the benefits of long term investment on good companies with growth potential. Take McDonalds as a classic case. If you invested US$1,000 in the IPO of McDonalds in 1965 and held onto it for 33 years until 1999, your investment would have ballooned to a value of US$15,700,000 or 15,700 times! Had you held onto it a few years longer to 2005, your investment value would have grown to over US$30 million for a total gain of 30,000 times in 40 years. That was a compounded growth rate of about 22% p.a. for 40 years.

Closer to home, if you invested in YTL Corp or Public Bank in early 1980s and held on for 20 years to 1998, you would have seen your investment value expanded by 30 times.

Of course, every investor has different time horizon for investment returns. Most will sell off after seeing a quick 50% or 100% gain as they are afraid of share price correction or they see better opportunities in other stocks. To me there is no right or wrong, you may just take whatever strategy that suits your own financial goals.

I may take some profit off YTLP when its share price rises too fast beyond RM5.00 and when I see opportunity in another good stock that may give me higher returns in long runs. Before that, I shall just continue collecting 15%-20% dividend yields every year as good passive income to fund my living and office expenses.

Good luck to all.

@Nepo, that's a great news for MCement. With its increasingly solid fundamentals and earnings (as demonstrated by Hume Cement earlier this week), MCement will attract the attention of more foreign funds.

I am confident it will break up RM4.00 soon, helping YTL to scale new highs.

Good break up!!

@harvest6138, I also cannot find monthly data on electricity consumption in Singapore but I have got monthly data on electricity generation (which is about 4.6% higher than consumption on average).

First 6 months of electricity generation in 1H 2023 was 28,241 GWh vs 28,377 GWh in 1H 2022.

July + Aug 2023 electricity generation totals 9,877 GWh vs 9,874 GWh in Jul-Aug 2022.

@harvest6138, there will certainly be the case. A good management always tries to innovate and diversify income base.

We see that PowerSeraya has already turned around from losses just 2-3 years ago to making good decent profits. Wessex Waters is suffering from temporary setbacks of high inflation and high interest rates in the UK, but will certainly bounce back as soon as April 2024.

I see that Yes 5G business segment is making good progress in capturing more customers and expect this segment to start making profits as soon as this Q1 FY2024.

Next, the 1st phase data centre park will start contributing profits from Q1 next year.

Then the digital bank venture with SEA will be able to make profits within 2-3 years, sooner or later, as demonstrated by SEA Group's own digital bank which already achieved EBITDA positive early this year.

More will come from subsequent phases of green data centre jobs, Selangor WTE plant from 2026, potential new solar power bids in next 5-7 years, potential RE export to Singapore etc.

I am sure YTL Power management team is always on the look out for good M&A opportunities as well, as we can see its entry into Ranhill Utilities which itself is a good strategic move.

Finally after 2 quarters of false start

For longer term investors like myself, I always love dividends, especially those stocks that give dividend yields higher than FD rates and EPF dividend rates. These form important passive income to me as well as providing a key support to long term share price.

Not to worry. Some traders prefer not to have dividend as share price will adjust down after dividend goes ex. Let these traders sell off their short term holdings then share price will have meaningful rebound.

I see RM2.18 as a strong support.

I think MLFF project should be under YTL. Have they got it?

PowerSeraya's retails market share should be maintaining at steady level in past few quarters as there was no new generating capacity coming into the market. The only thing different was that PowerSeraya has acquired Tuaspring earlier this year, so PowerSeraya now has bigger capacity to sell through its retails arm.

@kiasu9583, PowerSeraya earnings are not directly linked to USEP price fluctuations, as over 95% of its revenue is locked in through retails contracts and vesting contracts. No doubt USEP has come down a bit in Jul-Sep quarter compared to highs in April-June 2023 quarter, that should only affect a small quantity of long generation into the pool, no big impact.

@goody99, each of the growth items in my list above would provide meaningful earnings contribution of over RM100 million a year to several hundred million ringgit a year.

As the company has indicated before, the 1st phase of green data centre would contribute profit before tax of around RM100 million a year, so if the company can secure more green data centre jobs to fill up the 500MW capacity at Kulai site, earnings contribution from data centre segment would jump by 7 times. Once the project debts associated with these data centre jobs are fully repaid in 10-15 years, the project operating cashflows from all these data centre jobs would exceed RM1.0 billion a year.

Wessex Waters will turn in substantially higher earnings from 2025 onwards after it secures another 2 rounds of water tariff hikes in April 2024 and April 2025, and after its RCV expands to beyond 4.0 billion pounds sterling then. Remember Wessex Waters used to contribute PBT of over RM800 million a year just few years back. With the expanded RCV, I won't be surprised if Wessex would contribute PBT of over RM1.0 billion a year from FY2026.

The potential solar power projects to be secured in Malaysia and potential RE export to Singapore will be a volume game, providing decent low teens returns but low risks. As a simple guide, a 1000MW solar power project secured locally will contribute EBITDA of over RM300 million a year.

Foreigners reversed to selling position in October. As the ringgit depreciated by 5.6% MoM against the dollar and 10-year US treasury yields rose 100bps to 4.92% from 1 August 2023, foreigners completely reversed the purchases of RM2.2bil equities over 3 months for the period July-September 2023 in October (Exhibit 6-8). They were net sellers mainly in financial services (64%), consumer products/services (27%) and energy (4%) involving Hong Leong Bank, Maybank, Public Bank, RHB Bank, CIMB, IHH Healthcare, Malaysian Airports, PPB Group and Nestle (Exhibit 2). However, foreigners bought into YTL Corp, YTL Power, Inari Amertron, Sunway, Sime Properties, Boustead Plantation, Gas Malaysia and IJM Corp.

from Am Research

Foreigners reversed to selling position in October. As the ringgit depreciated by 5.6% MoM against the dollar and 10-year US treasury yields rose 100bps to 4.92% from 1 August 2023, foreigners completely reversed the purchases of RM2.2bil equities over 3 months for the period July-September 2023 in October (Exhibit 6-8). They were net sellers mainly in financial services (64%), consumer products/services (27%) and energy (4%) involving Hong Leong Bank, Maybank, Public Bank, RHB Bank, CIMB, IHH Healthcare, Malaysian Airports, PPB Group and Nestle (Exhibit 2). However, foreigners bought into YTL Corp, YTL Power, Inari Amertron, Sunway, Sime Properties, Boustead Plantation, Gas Malaysia and IJM Corp.

From Am Research

@Abcdefg123456789, you are most welcome. We are here to make big money, not to insult each other.

@pang72, Ranhill does not control Sabah electricity but has the largest gas fired power plant in western Sabah with 380MW. The proposed new electricity interconnector to link the power source in western Sabah to eastern portions will enhance power generation by Ranhill gas plants.

Ranhill was cheap before the news, trading at forward PER of just 7x, with operating cashflows of over 15 sen per share, vs share price of 60 sen in past 1 month

Good move by YTL Power. It is a direct path to gaining control to the prime water concession in Johor

@probability, yes we are enjoying the best of both worlds by staying in Malaysia and investing in YTL Power.

See the peak demand grew by an astonishing 8% from 7.3 GW in Feb 2023 to 7.9 GW in May 2023. That's what I have been calling for since last year that Singapore electricity supply is in extremely tight situation. This will continue for another 2 years until the new gas plants from Keppel & Sembcorp comes online in 2026. Even these two new plants may not be sufficient to meet the surging peak demand built up over next 2 years.

Even if we use a lower peak demand growth of 5% p.a. (vs 8% in past few months), Singapore peak demand will increase by almost 800MW by 2025 and by 1.2GW by 2026, so the new 1.2GW from Keppel and Sembcorp will be just enough to meet the expected peak demand increase in next 3 years to 2026.

Yes @Cryptolover, this is very attractive price to accumulate for long term investment.

Strong operating cashflows of over 30 sen per share every year can support dividend payouts of at least 9 sen to 15 sen a year, giving potential yields of 5% to 9%

Ammonia can be used for power generation, fuel replacement for coal in cement plant or other heavy industries and for bunkering fuel.

Singapore is moving fast on this initiatives, while Malaysia is still only talking on drawing board stuck with Tenaga

@cgtan2020, ammonia can be produced 100% green by using solar power or hydro power, and is used as a green fuel to replace high carbon fuel like coal, heavy fuel oil and even natural gas. It fulfills the green agenda or ESG requirements of many MNCs.

The other advantage of ammonia is that it is easier to store and transport, easier than green hydrogen.

The other advantage is cost, the cost of ammonia production is more or less fixed for decades once the capital costs for the solar power or hydro power and ammonia production plant are locked in. Hence it can be a cheaper fuel option when oil & gas prices are high. My own estimate is that the cost of generation using green ammonia may be cheaper than gas generation when brent crude oil price is above US$85-90/bbl.

@cgtan2020, this new ammonia development project in Singapore is potentially a big contributor to future earnings of YTL Power if PowerSeraya wins it.

It will be Item No. 11 in my list above to ensure earnings continuity for YTL Power beyond FY2025

@Alex Chua, that would be what I thought to be a win-win situation for both Nepco and Attarat Power. The PPA terms should be honored as it is, and Attarat could sweenten the deal by installing solar power and selling the extra power to NEPCO at a much lower tariff say US 7.0 cents/kWh, such that the blended tariff would be below US 10 cents/kWh which is the gas tariff at current gas prices.

@harvest6138, you are most welcome. Let's make big money together. Good luck

Though we are disappointed with the government actions (or lack of) so far, I still believe at the end of the day the government and the various industry players will do the right thing to make our national agenda a priority and realised. Lots of patience is required, especially for the present PM to strengthen his political grip so that we shall have political stability for at least 3 to 4 years for the various right policy to implement.

Meanwhile, we can fall back to overseas contributions (PowerSeraya, Wessex Waters, Jordan Power and Indonesia JawaPower）to continue contributing the bulk of the profits to YTL Power in next 2 to 3 years before the local mega projects start to kick off.

@harves6138, I have since updated the earnings projection in my subsequent update reports, the latest being this one:

https://klse.i3investor.com/web/blog/detail/dragon328/2023-08-24-story-h-241866920-YTL_YTL_Power_Electrifying_Up_to_Record_Profits

PowerSeraya earnings have indeed exceeded my wildest projection back in April 2022, then gross margin projected max at S$450 million and PBT of S$371 million a year. Now PowerSeraya is doing a base PBT of S$232 million based on my last estimate in end August 2023. Now I understand that total debts in PowerSeraya have almost halved to just above S$1.0 billion and so interest expenses are also halved now, pushing PBT towards S$240 million.

Then you will need to take into account of the strong Singapore dollars which just broke RM3.50 days ago.

Our government should stand firm on what they believe is good for the industry and businesses, like what Singapore government is doing. Singapore EMA believes that setting up of a new Gasco for centralised purchase of natural gas will be good for the power sector in Singapore and consumers, and it will push for the realisation after proper engagement with industry players.

Look at what our government has been doing here. Even engaging Tenaga to finalise the policy for RE export is going nowhere, hence we are missing out on the opportunity to participate in the RE tender by Singapore closing in end Dec.

There is opportunity out there and there is industry interests from private sector (YTLPower, Malakoff, Solarvest etc) to participate, but our government policy and bureaucracy has killed off those good opportunities.

as you pointed out, our 5G development is also in a mess, interrupted by various lobby groups and industry veteran like Maxis who still refuses to sign up for DNB. Even though DNB might have incurred higher costs than the second network provider yet to come, but this is our national 5G development plan already started from previous government and continued on by the present government. Industry players should try to support as much our national agenda for rolling out good 5G services, and not insist on their allegation that they can get cheaper 5G network provider.

If everybody signs up for DNB, then the cost of access to 5G services will be the same for all 5G players and it will be a level playing field. Unfortunately some industry veteran feel that their veteran and lucrative position should not be challenged by new players, hence trying to delay the implementation of DNB services, despite numerous attempts by our Communications Minister to urge for finalisation of equity subscription to DNB.

@probability, yes the swift to renewable energy is unstoppable, but politics and Tenaga policy are the main obstacles stopping Malaysia's swift to renewable energy.

To achieve installation of new 8,000MW of solar power by 2030 and another 25GW by 2050 will require massive investments from various private sectors and swift roll-out of public tenders of large scale solar projects by the government. So far we are not seeing much actions by the government besides just talking big on the RE plans, I guess the bottleneck is at Tenaga who is playing hard ball with the government trying to secure as much such new solar projects as possible. But Tenaga's own capital investment requirement is already super high for strengthening of national power grid, totalling RM180 billion over next few years. I think the government needs to stand firm and play tough games in order to achieve its RE plans.

I am not too sure of Brabazon project progress but I do not expect YTL Power to aggressively launch new projects there as UK interest rates are still high and property market is weak. I would expect the property market will be conducive enough from 2025 for more significant launches.

@Alex Chua, yes there are plans to ensure continuation of strong earnings for YTL Power to continue beyond FY2025:
1) WTE plant to start from 2026
2) Digital bank to turn in profit from 2026
3) Green data centre 1st phase to start contributing profit from FY2024
4) Subsequent phases of green data centre to contribute profits from FY2025
5) Wessex Waters earnings to rebound from Q4 FY2024 after next water tariff hikes
6) Wessex Waters RCV to expand substantially for next regulatory period from April 2025 to ensure earnings to expand meaningfully from FY2026
7) Potential win of new solar power projects in Malaysia as Malaysia plans to roll out some 8,000MW of solar power projects by 2030 and another 25,000-30,000MW by 2050
8) Potential export of RE to Singapore from 2027
9) Meaningful earnings contribution from UK property development from 2026 once interest rates there retreat to normalised levels
10) Potential win of the new gas plant tender in Singapore to expand PowerSeraya earnings from 2028

The digital bank JV with SEA Group should be on track for commercial roll out in Q1 next year.

The experience of SEA Group in its own digital bank business (which has turned EBITDA positive) will help in making this JV a profitable venture in 2-3 years.

Why I said this is a positive development is because this new measure will help gencos to secure sufficient gas supply for years to come and at terms more acceptable to gencos, as it will be negotiated in bulk by EMA's Gasco on behalf of all gencos.

After the expiry of first LNG supply tenor in April 2023, each genco needed to go source for own gas supply and to negotiate with the oil & gas majors for a relatively small quantity of gas sufficient for each own consumption. Each genco did not have much bargaining power and hence could not secure good terms for the gas supply, hence such feedback to EMA has given rise to the proposed set up of a centralised purchase entity Gasco.

As EMA is calling for new tenders for new gas fired power plants to be built from 2028, the new gas plants will need gas supply but the winner of the bid is not known yet at this juncture. Gasco can then step in next year to secure the necessary gas supply for the new gas plant for whoever the eventual winner of the bid. That will take away a major risk for bidder to participate in the upcoming tenders. If PowerSeraya participates in such tender, it will not need to worry about sourcing for new gas supply, but focusing on getting the best technology with high efficiency.

Hence this is a good development for the electricity industry in Singapore as a whole.

Due to reason 2) above, PowerSeraya will have less chances of making extraordinary profits from long generation into the wholesale electricity market, which typically contributes less than 5% of overall profit. That may be the only impact.

As the bulk of PS profits come from the retails electricity market and vesting contracts, so such extraordinary profit from long generation into the wholesale market if disappearing will not cause much dent to PS overall profit.

This can be validated from the upcoming results for the July-Sept 2023 quarter during which TPC was already in place to curb pool price spikes.

@xiaochen, this centralised purchase of natural gas will have no significant impact on PowerSeraya for a few reasons:

1) Existing gas supply contracts are allowed to continue until expiry. PowerSeraya has secured relatively cheap gas supply at least until Dec 2025, some extended to 2028, so this new measure will have no impact on PS at least for FY2024 and FY2025 and 1H FY2026

2) Once it is implemented, all gencos will have access to same gas supply and pricing, which will be back to prior arrangements before 2023 April when all gencos got the same gas supply from Malaysia and Indonesia at similar pricing and LNG from BG. All gencos will have similar gas cost structure, and will only compete on plant efficiencies.

3) EMA has no control over retails pricing which is itself a competitive market. EMA will be able to control gas pricing to gencos, which will help stabilising input costs to reduce occurrences of price spikes in the wholesale electricity market, but it will have no impact on retail electricity market which depends on supply and demand