YTL has increased its borrowings when buying up good assets in the past 10 years. It takes time for these assets to develop and increase value to a certain level for YTL to lock in profits. For example, when it bought the Niseko land at just USD60 million and quickly sold it off at say double the price in the following year, then it would have missed out on the explosive value growth of the Niseko land in past 5 years, which has ballooned to a market value of USD2.0 billion. Of course it is now subjective as to whether it is the right time to sell it. One may say a capital gain of over 30 times in few years is very good already, but another may say if you sell it now, what if the land value became USD10 billion 10 years later??

It would be nice to get a supernormal dividend now from the company but that cash dividends received by us now might be hard to generate more income than it would when sitting at the company. Small investors like us may buy some stocks at cheap prices but it would be very difficult for us to buy up a good asset of say RM1.0 billion that could give good returns. But YTL is now in a good position to look for bargain sales. It would be nice if it could get another choice landbank like the Niseko land at distressed price, or buy into another world class hotel like The Marriott at Sydney Harbour.
For a start, YTL will deploy some of its cash into good use by developing the digital bank it owns with Sea Group.

It is easy to say to distribute out all cash in balance sheet and close down the company. I hold a contrarian opinion, in fact I think the best is still to strike a good balance of giving decent dividend yields of 6%-7% p.a., while maintaining a good cash warchest to get ready to scoop up good assets at bargain sales. And I think good opportunities are coming in next 2 years as US interest rate hike cycle kicks off aggressively and soon we may see many companies going into bankruptcy.

I think the YTL management has been trying to pay dividends as generously as they can. YTL has given out a total of RM28 billion of dividends in past 10-15 years. In the past 2 years FY2020-2021 when it made a small accounting loss, YTL still paid out 2.5 sen of dividends.

Yes dividend payouts have been cut down in past few years as business operations of its subsidiaries were affected by covid-19 pandemic and other reasons, but things should be looking up again soon.

I expect better results in this coming March quarterly result but may not have any big surprise.
I do agree with you that it is unusual for YTL Power to have such active trading volume in past 4 weeks. The peak volume of over 100 million on 8th April 2022 clearly indicated strong fund buying, likely to be foreign funds as local funds like EPF had been selling.

KC, good analysis and well written!
Agree with you that while there are so many other undervalued stocks with much stronger balance sheets and assets, why bother to look at Subur that may go into bankruptcy if palm oil prices drop back to pre-pandemic levels?

Xiaochen, I can understand your frustration. Many minority shareholders have been suffering from depressed share price of YTL Power in past few years. I have friends who bought into YTLPI at about RM1.50 per share and they are cursing the stock like hell.
I would call for patience and I think the re-rating time is finally arriving. If you have been holding it for 5 years or more, why not hold a bit longer to see if the share price will go back to the level you first bought? I foresee good share price rebounds back to RM1.50 level within the next 18 months.

JJPTR, as per YTL Corp quarterly report ended 31 Dec 2021, it had cash of RM2.815 billion and another RM8.579 billion of fixed deposits, total RM11.4 billion cash.
The total debts of RM11.7b + 31.998b should have included debts at Wessex and Jordan as YTL Corp owns some 55% of YTLPower and so should have consolidated all the cash and debts of YTLPower.

Anyway I believe the outlook of YTL Power is becoming better with multiple re-rating factors coming in next few months - higher dividends from FY2022, Jordan power plant to start commercial operations in 2H2022, PowerSeraya earnings to rebound strongly, digital bank business to kick off from mid 2023, potential win of power import bid from Singapore, continued clinching of more data centre deals in its Kulai data centre park, etc.

That is why there were 216 shareholders who voted against this director fee payment during the last AGM. I would have voted against it too if I were there. I think they should have been paid just the RM1,000 attendance fee for each board meeting attended and no more.

There should be some misunderstanding there when one claims that Yeoh directors got fat salary and director fees. The Yeoh directors have actually foregone their salary and director fees for 2 years when the company was making losses. The total fee of RM842k for non-exec directors was not too excessive though I reckon that they might not deserve it given the company has not performed in past 3 years.

xiaochen, I agree with you that dividends are important to minority shareholders like us. Dividends have been down to 4.5 sen to 5.0 sen in the past few years, that is discouraging. But I believe YTL Power had really no choice but cut down dividends in past few years due to non-performance of its few subsidiaries like Yes telco business due to competitive environment and PowerSeraya due to over-supply situation in Singapore electricity market then.
I think the bad times are behind us and the outlook of YTL Power is turning brighter. They have just delivered a couple of good news in the past 3 months - 1) disposal of Electranet for RM3.05 billion cash,, (2) the launch of green data centre in Kulai with the first 72MW under construction and another 162MW contract signed.
Hopefully YTLPI will declare higher dividends for FY2022 with its nett cash position now. I am hoping for at least 7.0 sen for FY2022 and then hopefully 10 sen for FY2023.

Assuming every 5 years forward, Wessex would incur same capex and RCV would increase by same 500 million pounds, then returns to equity would go up to 3.4% in 10 years, 3.7% in 15 years and 4.0% in 20 years.
My point is that for a fund that invests in Wessex now, it will get increasing yields / returns on equity over time. Regulated assets like Wessex is so valuable that many long term funds are looking to buy but owners will not sell anything cheaper than 1.5x RCV now.

If a fund buys into Wessex at 1.6x RCV now, or for an equity value of 1.6 x 3.566bn - 2.315 bn = 3.39 billion pounds, then the fund would get a return on equity of 98m / 3390m = 2.9% p.a.
This may look low but still much higher than 1-year Libor of 2.01% and 5-year US treasury bond yield of 2.5%.
If the fund holds onto this investment in Wessex for 5 years, then RCV would have increased by 500 million pounds to 4,066 million pounds. Assuming interest rates remain at 2.0%, then Component B revenue would go up to:
4,066m x 4.5% = 183 million pounds per year, or an increase of 23 million pounds just from a larger RCV 5 years later. Of course borrowings would have gone up larger too, say for a total capex of 1.0 billion pounds over next 5 years, at 70% gearing, borrowing would have gone up by 700 million pounds and interest costs per year would have gone up by 14 million pounds, so cashflows to equity would have gone up by (23m - 14m) = 9 million pounds p.a.
The the return to equity for the fund would go up to (98+9)m / 3,390m = 3.16%

Take the example above, Wessex generated component B revenue of 160 million pounds from curretn RCV of 3.566 billion pounds and at a WACC of 4.5%, giving a return on asset (ROE) of 4.5% (160m/3566m) and return on equity of 8.0% (cashflow to equity = 166m - interest paid 68m = 98m divided by equity value of 3.566bn - 2.315bn debt = 1.251 bn).

Long term investment funds like retirement funds love these regulated assets which give them secured and steady and growing income & dividends. The Australian superannuity fund just bought over Electranet at 1.6x RCV from YTL Power. That clearly explains why these assets can really sell at 1.6x RCV, which is my valuation for Wessex.

If Wessex makes lots of profits, eg. earning a big bonus from outstanding operating performance, getting lower interest rates than expected, spending much less capex than required or reduced operating costs, then Wessex will be able to distribute more cash to YTL Power as dividends.
For instance, if Wessex were to make an IPO listing of say 30% of its shares in London stock exchange at 1.6x RCV, then it would raise funds of close to 1.0 billion pounds. After deducting about 300 million pounds for the equity portion of the required 1.0 billion pounds of capex for next 5 years, the balance of 700 million pounds of IPO proceeds could then be distributed out as dividends to YTL Power.

As you can see from the above formula, if interest rates go up, then Component B revenue will go up to compensate for the higher borrowing costs. If interest rates go up by 1.0%, Component B revenue will go up by 25 million pounds.
As long as Wessex maintains a gearing ratio of 70% or below, then it would always earn more revenue than the increase in interest costs. Wessex gearing was at 69.873% in FY2021.

Take an example, say cost of equity return allowed is 8.0% and cost of debt is 3.0% and gearing ratio agreed is 70%, then with RCV of Wessex at 3.566 billion pounds in 2021, the Component B revenue for 2021 would have been about:
2.556 bn x [(1-70%)*8% + 70%*3%} = 3.566 bn x 4.5% = 160 million pounds

Wessex did achieve an operating profit of about 166 milion pounds in FY2021.

Come back to Wessex. You need to understand how the business works in order to comprehend what I said earlier that this regulated asset business will never lose money.

The revenue of Wessex or any other regulated asset business (eg. Electranet) comprises two main elements: (1) Component A to cover Operations & Maintenance (O&M) costs, and (2) Component B for capital returns.

Component A is purely a pass-through item based on an agreed sum to cover the expected O&M costs Wessex needs to incur every year to cover its operating costs, manpower, office overhead, maintenance and repair costs for its assets, etc. This sum is pre-determined with Ofwat for every 5 years subject to inflation adjustment every year. For instance, Wessex incurred total O&M costs of about 335 million pounds for FY2021, and it received Component A revenue of about the same to cover the operating costs.

Component B is a revenue sum to give a return to Wessex for spending capex to build the water infrastructure to render its services. In simplicity, this Component B is calculated based on the formula below:
Component B revenue per year = RCV x WACC
where RCV is Regaulatory Capital Value, or the total asset value
WACC is weighted average cost of capital = (1-g)*Ke + g*Kd
where g = gearing ratio
Ke = cost of equity
Kd = cost of debts

Of course, if Wessex really could not liquidate any asset to repay bondholders, then YTL Power would help but it would never be an obligation to help.
It is just like when Sam buy a house with say his brother as the guarantor and Sam defaults on the house loan. The bank will first go after Sam's own money or assets, then go after his brother as the guarantor, but the bank cannot go after Sam's father for his father's money and many assets. But Sam's father can help him pay off but it is not his father's obligation to the bank to help Sam.

JJPTR, Wessex Waters is 100% owned by YTL Power.
When Wessex issues a bond say of 300 million pounds to fund its capex program, those investors who subscribe for the bond will be entitled to some bond yields and they will have assessed the risk and rewards before subscribing to the bond.
If Wessex defaulted on the bond, eg. not able to redeem the bond upon expiry, then the bond holders would go after any cash left in Wessex then try to force Wessex to liquidate some of its assets to repay the bond principal. But the bond holders could not go after YTL Power directly and whatever cash that YTL Power has in the holding company would not be affected by the default of a bond at Wessex which would have no recourse whatsoever to YTLPower.

Myway, I do not know why there was no announcement from YTL yet on the digital bank license.

in this example, of course YTL Power would lose its equity money it put inside this project but no more.

For argument sake, if Jordan project defaulted on its borrowings, the lenders would go after the assets (the land and power plant, the power purchase agreement, etc) owned by Attarat Power and could not go after YTL Power, as all the project debts are ring fenced to the project itself.

JJPTR, if Wessex defaulted on its bond, it would not have any recourse to YTL Power nor cause any cross default to YTL's other subsidiary or project. YTL Power would still be able to use its gross cash of RM10.6 billion to fund its data centre business or solar power projects, Jordan Attarat Power would still be able to draw on its debts to fund the construction of the power plant, YTL Corp would still be able to use its unencumbered cash reserves to buy more assets.
But Wessex itself would suffer from bond rating downgrade and possible penalty by the regulator. I would not be worried with such a scenario as I know its regulated asset business would never lose money, its cash flows would always be able to service its debts and provide the returns to shareholders as long as its operating performance is inline with regulatory requirements. As long as Wessex performs as per requirements, the business will always provide the returns as per the predetermined WACC, which is the weighted average cost of capital.

It is just like when you buy a house, you would not use 100% cash to buy it even though you may have the cash. You will borrow a mortgage to help funding the house purchase. When interest rates go up, you will need to pay a higher monthly instalment so you lose out in high interest rate environment.

For Wessex or a regulated asset business, when interest rates go up, Wessex will get higher water tariffs to compensate for the higher interest rates so to Wessex high interest rates will just get passed though to customers in the form of higher water tariffs. That is the beauty of a regulated asset.

Utilities companies need to spend on capex and most relies on some debts to expand. No one would use all equity money to acquire an asset or to expand on infrastructure network. It is hence more important to manage the debt level and to ensure all debts are properly secured against the assets at each subsidiary level so that the debts will have no restriction over the holding company's use of cash to expand further.

The Jordan project debt is ring fenced at the project level and will be serviced by project cash flows. The project company may have entered into interest rate swaps to protect it against future interest rate hikes. It will have no impact to YTL holding level.

Rising interest rates will have no impact on Wessex Water nor Jordan project. Wessex is in a regulated asset business with a prescribed debt-to-equity ratio of its capex spent and Wessex is well within the prescribed debt-to-equity level below 70%. Rising interest rates will in fact raise its regulated asset value faster, making its Regulatory Capital Value (RCV) higher by minimum 500 million pounds by the end of this 5-year regulatory period. At 1.6x RCV, Wessex will be worth 800 million pounds more in 2025.

As I explained, these debts are mostly ring fenced at subsidiary level and have no recourse to the holding company. YTL Corp is actually in net cash position at the holding level.

Again, I ask the question - what have you got to lose by buying YTL at decade low prices?
Furthermore it still gives decent dividends. The downside may be 10% max but upside is >100%. Can you find me another stock that can give such an odd?

There are plenty of under-valued stocks in Bursa and there are reasons why they are cheap. There are plenty of stocks that are over-valued but still people chase it higher, eg. glove stocks in 2020 and tech stocks in 2021.
Undervalued stocks will not remain low forever, just waiting for the right time to get uncovered. And I believe the right time is here for YTL to deliver and its share price to at least double up in next few months.

Danny, I have not studied Berjaya group but I do know they too have plenty of prime land in KL.
Anyway, I have explained in details why the share price of YTL has dropped in past 7 years, please read the article again.

In fact, YTL group has a total of USD 4.0 billion (RM17.2 billion) of unencumbered cash that can be deployed for M&A deals. When the time comes, they will strike and put the cash reserves to work.

YTL may have some USD debts exposure but most of these borrowings are ring fenced at subsidiary level, meaning that these debts are secured by subsidiary assets or project based, and will not have any recourse to YTL holding level.
For example, RM13.3 (2.4 billion pounds) billion of the debts sit inside Wessex Waters and served by Wassex revenue in pounds, RM6.9 billion (USD1.6 billion) of debts are ring fenced at the Jordan power plant project and will be serviced by project cash flows, etc.

The stock share price is near decade low, what have you got to lose in buying now?

The company has so many good long term assets that take time to unlock, eg. the KL prime land, Niseko landbank, Wessex Waters. PowerSeraya will fly next year and cement division will go up strongly in next few months. Patience is the key.

DannyArcher, it is RM71.6 billion to be exact in my bluesky case.
Please read the article again and go through my arguments there. You are welcome to give any comment then.

Be patient. Multi-rerating factors are coming soon

https://klse.i3investor.com/web/blog/detail/dragon328/2022-05-05-story-h1622437940-YTL_Corp_is_soon_becoming_another_10x_Bagger

Look at the desperate sellers at RM1.14 now, how many lots are from LTAT?

As I said before, there are certain groups of investors who are bearish on CPO price outlook and they are not up to date as to what is happening in the edible oil market nowadays. Just look at how many local analysts who are bearish on CPO price, most projecting an average CPO price of just RM4,000-4,200/t for 2022, ridiculous.
LTAT has been ill-advised by these people without realising that Bplant is so so much under-valued.

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.

Ya IOI Corp would be a good suitor as well. Or Sime Plantation. Anyway it all points to the fact that Bplant is grossly undervalued and has good assets.

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.

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.

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.

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.

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.

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.