As seen before in 2021, Morgan Stanley would not sell Media below RM0.60. Good chance to collect!

Even if we do not look at SOP valuation but look at cash flow valuation, it points to the same fact that YTLPI is grossly under valued at 67 sen.

Maybank projected operational cash flows of about RM2.5 billion per year for YTLPI in next 2 years. If we exclude expansion capex for a moment (i.e. if we assume YTLPI would not expand into any new venture that requires big capex), its free cash flows would top RM1.6 billion or 20 sen per share.

It would easily be able to declare dividends up to 7 sen or 10 sen per share every year in steady states with current asset. At 5% dividend yields, YTLPI should be valued at RM1.50 to RM2.00 per share.

Using estimates above, YTLPI should be worth additional 21 sen from Wessex and 40 sen for PowerSeraya.

This would take its SOP valuation from 90 sen to RM1.51 per share.

If we look at cash flows valuation of PowerSeraya, it should be worth at minimum price-to-FCF of 20x (or 5% dividend yield). Using Maybank projected earnings of RM200m from PowerSeraya, it should be worth at least RM4.0 billion or 48 sen per share of YTLPI.

Another crazy thing in Maybank's SOP valuation is that it did not ascribe any value to PowerSeraya, the second largest power company in Singapore.

While Maybank itseld projected that PowerSeraya would contribute RM196m to RM250m per year to YTLPI, it makes no sense to attach a zero value to the company.

While PowerSeraya is not a regulated asset, it still owns substantial power generation assets, land, oil tanks and more importantly a limited generation licence in Singapore. At the worst, PowerSeraya should be valued at cost or at least SGD3.0 billion. Minus out estimated debts of RM5.8bn at PowerSeraya, it should be worth RM9.0bn - RM5.8bn = RM3.2 bn or 40 sen per share of YTLPI.

Maybank IB iteself projected earnings contribution of about RM360 million from Wessex to YTLPI. How could Wessex be valued at just RM3,587m or 10x earnings or 10%-12% dividend yields for a top-notched regulated asset in a low interest environment of 1% in the UK?

The sale of Electranet at below 2% dividend yields has proven that such regulated asset should be valued at max 5% dividend yield.

As such Wessex should be valued at minimum RM7.0 billion or 88 sen per YTLPI share. This would actually just value Wessex at a 1.09x RAB.

Local analysts here do not know how to value regulated assets and do not appreciate how valuable such perpectual regulated assets are.

In Maybank's SOP valuation of YTLPI, it attached a value of RM3,587 million to Wessex. I think this is grossly under valuation of Wessex business.

Wessex has a RAB of GBP3.36 billion or RM19.3 billion as of 30 June 2021 and Maybank's estimated debts at Wessex at Jun 2021 was RM14.00 billion. If Wessex is valued at 1.0x RAB, then the equity value of Wessex would be RM19.3 bn - RM14.0 bn = RM5.3 billion or 65 sen per YTLPI share.

This would be at least 21 sen higher than Maybank's estimated value of 44 sen.

This raised its nett cash level in holding company to RM1.90 billion or 23 sen per share. This cash shall come in handy when YTLPI continues to pursue long lasting profitable new ventures like setting up solar power plants and data centres.

The more important thing is value and cash flows. Maybank IB just upgraded YTLPI target price to RM0.90 after YTLPI completed the disposal of Electranet and received RM3.0 billion cash.

It was a big mistake for EPF to sell YTLPI below RM0.60 and now it is buying back above RM0.60. It is like the case of Astro too, EPF was selling at RM0.97 and now buying back above RM1.00. It bought lots of glove stocks few months back then was seen selling off slowly over past few months. I will not read too much into EPF trading pattern.

Furthermore, Bplant is generous with dividend payouts. It paid out total 8.4 sen of dividends in 2021. With CPO prices hovering above RM6,000 per tonne, Bplant is expected to record higher profits and declare dividends over 10 sen in 2022.

One more advantage BPlant has over other planters is that all of Bplant's plantation land is located in Malaysia, none in Indonesia. This makes a big difference as the realised CPO sale price from Malaysia is close to market price RM6000+ per tonne while palm oil export from Indonesia will be subject to maximum USD575 (or RM2,300) per tonne of export duty & levy

Bplant also seldom sells forward so it benefits maximum from current high spot prices of CPO.

With edible oil supply becoming very tight and suitable plantation land limited, palm oil estate land will become very much more valuable in future. Plantation land will be worth easily RM70,000 per ha as people scramble for land.

If Bplant 65k ha planted land is revalued to RM70k per ha, then it will be worth 65k x RM70k = RM4.55 billion or RM2.03 per share.

Plus the market value surplus of its 9700ha land near township, Bplant should be worth RM2.03 + RM0.90 = RM2.93 minimum

BPlant is one of the cheapest plantation stock in Bursa. It has over 65,000 ha of planted palm oil estates, now valued at just RM35k/ha or 35 sen psf.

It also has 9,700 ha of estate land nearby town which could be monetised at much higher price than normal plantation land. These land plots are valued at just RM893m or RM91.7k per ha or RM0.85 psf in book value. Recall that Bplant sold off its 664ha of land in Kulai for RM429 million or RM646,084 per ha or RM6.46 psf. Assuming that Bplant can monetise these land parcels at half the valuation or RM300k per ha, this 9700ha land will be worth RM2.91 billion or RM1.30 per Bplant share. This would add RM0.90 to its book value.

Now Bplant current book value is already RM1.31 per share and would increase to RM2.21 if the 9700ha land is monetised or revalued to market value.

Shareholders of AEON have been suffering in declining earnings and depressed share price since 2012 for the over spending in past few years. For 10 LONG YEARS, shareholders have been suffering enough.

For no new mall addition, if the management is asking shareholders for RM200m-300m of money every year, I would tell them to go fly kite.

If the CEO is asking for capex allocation of RM200-300m p.a. for the next 2-3 years, he must deliver better earnings for the next 3-5 years. DO not just ask money from shareholders but under deliver.

If AEON has its debts exceeding RM600m again by year end and fails to deliver over RM100m in net profit for FY2022, he must go. No more excuses. Simple as that.

I do not know what made the CEO cautious of this year prospects. He must deliver better results than last year which had almost 2.5 months of total shutdown of its shopping malls. This year also sees another RM10k EPF withdraw which will inject RM30-50 billion of cash into households' spending.

Every single capex program whether on mall rejuvenation or on IT/technology must be able to achieve a KPI return of 12% IRR or higher, or provide a payback within 7 years. For a RM100m spent on a mall rejuvenation project, AEON management must ensure that it will improve lettable area or footfalls in the mall so that it will provide higher income of at least RM12m p.a. after the capex improvement.

For every single capex program, the management must exercise caution and set reasonably high KPI for expected returns, otherwise just do not spend it.

Should learn from DKSH who spent about RM30m on internal improvement programs which almost immediately lifted up profits by over 30% or over RM20m in the following year.

For example, the capex spent on installing solar panels at AEON malls is well spent as it will pay back within 3 years, i.e. capex of RM100m shall give total returns of RM100m in 3 years in the form of tax rebates / savings and electricity cost savings.

I wonder if the spending of RM50m to RM75m p.a. on technology will give what sort of returns. It is not a small sum. If used in paring down debts, it will save interest costs of RM2m to 4m p.a. The management should use similar benchmark when deciding on each of such capex program.

AEON management must be prudent in new capex spending and must learn its own mistakes of lavish spending in previous years from 2013-2018.

If they target capex of RM200m to 300m a year for next 2-3 years, it is still acceptable and can be fully funded by internally generated cashflows without the need to raise more borrowings. They must remember that they still have hundreds of million of debts sitting there to serve.

Take a middle figure of RM250m capex a year, 30% or RM75m for technology a year is a bit too high. They have to ensure this amount of capex shall be able to improve sales and profits and get back investment returns within 5 years.

40%-50% capex or RM100-125m a year on mall rejuvenation programs seem reasonable without any new mall building. Again such investments must provide immediate returns to increase sales and rental income.

The remaining 20%-30% capex or RM50m - 75m for maintenance is within the ballpark.

I would look at annual operating cashflows of RM376m or 27 sen per share before capex. No matter how they slice it, there would still be positive free cash flows of over RM100m to RM300m. I would prefer them to spend less in the next 2-3 years, eg like RM50-70m p.a. like in 2021 to build up cash and return debts further first before embarking on more aggressive capex programs.

As long as edible oil supply is tight, palm oil prices may go up double or triple to beyond RM10,000 per tonne.

The logic is simple. While a household may spend RM200 per month on petrol or diesel for car usage, when crude oil prices jump from USD80 per bbl to USD120 per bbl, RON97 prices jump from RM2.40 per litre to RM3.60 per litre and household spending on petrol will jump up 50% from RM200 to RM300. It hurts as the cost increases by RM100. Consumers may use car less or take public transport to reduce costs.

But a normal household typically consumes 2 litre to 3 litres of cooking oil per month, that costs about RM10-15 a month. If palm oil prices double from RM5,000 per tonne to RM10,000 per tonne, cooking oil prices may rise from RM5.00 per litre to RM10 per litre and household spending on cooking oil may increase from RM10 to RM20 per month. Cooking mama may not even blink but still buy cooking oil even prices have doubled, simply because there is no alternative. People will not just eat steamed or boiled food!!

The big drop in CPO prices last Friday was a knee-jerk reaction to Indonesian government announcement to lift export ban. Indonesia producers took the opportunity to export more before the new max export duty/levy kicks in.

However, palm oil producers will soon realise that more and more potential buyers are coming into markets to look for palm oil supply, as sunflower oil supply and inventory dries up. Producers will not rush into selling cheap palm oil as the supply demand balance is soon going into severe supply deficit.

India already imported less in February and has its edible oil stock inventory running low. When it realises that it is not able to get any other edible oil cheaper, India will turn back to palm oil again and order more to fill up inventory for upcoming festivals.

Wait and see when Europe countries also run out of sunflower oil like in Denmark, who cares if palm oil rises to RM7,000 per tonne. Securing supply for domestic cooking oil will become the priority, otherwise consumers will take to the street when the supermarket shelves become empty of cooking oil.

With Indonesia lifting the export ban but raising the export duty & levy to max USD575 per tonne, there is no incentive for Indonesia palm oil producers to export palm oil at current prices. I expect more than 30% of Indonesia palm oil supply will be taken out of export market to supply to domestic market.

With current Indonesia domestic market prices hovering around USD1,100 per tonne and Indonesia government trying to cap domestic cooking oil to about USD1,000 per tonne, Indonesia palm oil producers will be incentivised to export palm oil only when CPO prices rise to USD1000 + 575 = USD1575 or RM6,300 per tonne.

This is well expected as Russia Ukraine accounts for 75% of world sunflower oil exports. Ukraine will likely miss this spring seeds planting and sunflower oil supply will be extremely short till year end. Just imagine that almost 9.0 million tonnes of sunflower oil supply is being taken away from markets, which country can fill the gap?

Anyway this telco business division does not form any value to YTLPI's SOP valuation, investors have long written off the investment in this division. The important thing is to ensure this division will not drain off any more cash.

Even if YES were to pay an annual fee of RM400m for access to the 5G network, it would need to get 500k new 5G users at monthly fee of RM100 to get 500k x RM100 x 12 = RM600m additional revenue per year to make money. It is not a tall order as it already has 2.5m user base and it will have equal quality of 5G network to offer as by other big telcos.

The annual coverage fee of RM400m has to be benchmarked to the usage or user base of each telco. It cannot be the case for YES to pay the same RM400m for a 5G user base of say 200k as Maxis having a user base of 5 million. YTLPI would never agree to such fee structure.

Good analysis Observatory.

RM74m to RM280m is not a huge sum of initial capital for getting equal access to the 5G network. If YTLPI could get some 100k new subscribers for the 5G services at RM100/month, it would add RM10m of revenue per month or RM120m of annual revenue, which would be very good for a small upfront investment of RM74m to RM280m. Hope this will help it turn around its telco division business.

Actually for no good reason LTAT is selling its stakes in Bplant. It might think that CPO prices had peaked so trying to take advantage of price strength, but I think soon it will realise there is still so much upside to CPO price rally in coming months and will stop selling.

Without the heavy upfront infrastructure costs for the 5G network, YES would be able to compete on level ground with other big brothers. It will be down to which telcos' overhead costs are lower per subscriber, with YES having a slight advantage. I hope this will help YTLPI to turn around its loss making telco division.

The government just announced to allow withdrawal of RM10,000 from EPF for eligible members. Assuming 5 million EPF members will make the withdrawal, there will be RM50 billion of cash coming out for households to spend.

AEON will be one of the major beneficiary of such massive cash injection into the retails market. With chinese new year and back-to-school spending in Jan-Mar, this quarter will see AEON achieving another record earnings.

With this massive cash adding to households' spending and Hari Raya festivals, the April-Jun quarter may well see good earnings momentum continuing for AEON.

The CPO price drop over past few days was mainly due to big drop of crude oil and news of China's release of some 70k tonnes of soybean oil reserves. China Sinograin has already released some 84% of soybean oil reserves to try to stabilise its domestic cooking oil supply and prices, so not much left.

India reduced import of palm oil in February as CPO surged to over RM7,000 per tonne but they cannot hold off purchases for too long. Typically their inventory stock may last one month of consumption, I do not think they can hold off purchases for another month. Statistics show that in the first half month 1st-15th March, our palm oil exports have gone up 15% from Feb. I expect the export momentum to speed up as potential buyers realise that edible oil supply is very tight and prices are not going to drop any further.

Of course the major risk would be for Indonesia to reverse its restriction on palm oil exports. Otherwise CPO should be staying above RM6,000 per tonne for the rest of the year.

Not many nations are willing to buy sunflower oil from Russia lah under US sanctions. Ukraine is likely to miss out on the spring planting season this year so there will be little sunflower oil production in next 12 months. Russia and Ukraine together account for almost 75% of sunflower oil exports of some 18 million tonnes a year, a 50% supply disruption of Russia-Ukraine sunflower oil will take out over 6 million tonnes of sunflower oil from the international edible oil supply market this year.

Furthermore, the 30% ban on palm oil export from Indonesia will take out 30 million x 30% = 9 million tonnes of palm oil supply from international market. Malaysia is the second largest palm oil exporter with about 18 million tonnes of export each year. Even if Malaysia managed to increase palm oil production by 20%, it would only add 3.6 million tonnes of palm oil supply, far lower than the supply disruption from Indonesia.

The edible oil supply will be very very tight this year, even if the Ukraine war ends tomorrow as sanctions on Russia will continue and Ukraine will miss on spring planting of sunflower seeds in April-May.

Anyway, I believe the Electranet deal was done at a premium as YTLPI has always been savvy in buying low and selling high. It acquired Wessex in 2000 at a discount of almost 30% to RAB.

Wessex RAB has gone up to GBP3.5 billion now, just imagine if YTLPI were able to find a buyer at 30% premium to RAB. It would immediately add GDB1.05 billion to its valuation.

If your RAB figure of RM9.25bn for Electranet is correct, then I will also be confused how the deal was done at 1.9x RAB.

In Yeoh's interview yesterday, he mentioned that YTLPI disposed of its stakes in Electranet at 1.9x the Regulated Asset Base (RAB), which is at a huge premium. That's what I thought initially that the sale was done at a huge premium.

@Observatory, you may want to check again your figure of RAB for Electranet. You estimated before that it was done at just 1.0x RAB.

@Observatory, no doubt there will be obstacles for YTLPI to export solar power to Singapore as there has been always competition and political considerations for such lucrative business.

LSS4 is a competitive tender launched by Energy Commission to solicit interests from as many local players as possible, hence limiting the size to 50MW max each project. As the initial capital costs for setting a solar farm are high, something like RM175m for 50MW excluding land costs, EC's move to limit the size to 50MW was to enable more mid-size developers to participate and raise funds easier.

For the proposed export of solar power from YTLPI to Singapore, it is different in the sense that it is now the energy authority of Singapore who solicits interests from overseas players to import renewable energy into Singapore. Everyone is free to participate in this tender, including Tenaga Nasional and other power players in Malaysia or Indonesia. It is level playing field that does not political interests. Our Energy Commission has no reason to block this export unless there is technical reason or grid stability issue.

As Dato' Yeoh pointed out yesterday in his interview with The Star paper, there is continency plans for the use of the Kulai land should YTLPI fail to win the tender to export power to Singapore. They could try to attract MNCs to set up data centres there and install solar power for these data centres. The Kulai land is large enough to install 500MW of solar farm and to accommodate data centres or other load users.

Black Rock fund too bought into Occidental Petroleum, another big fund after Warren Buffet. They know very well Occidental Petroleum will make tonnes of money, likely above USD20 billion if oil prices stay above USD100/bbl.

Hibiscus is like a smaller brother of Occidental Petroleum, both having 100% pure upstream exposure to current high oil prices.

Hibiscus would generate operating cash flows of over RM1.6 billion if oil prices stay at average USD90/bbl for 2022.

Local fund managers here are not fast enough or not gung-ho to snap up shares of this gem.

I am not sure how YES will develop over next few years as I am not familiar with telcos business. I did not like its venture into this telco business from the beginning. They did not have any expertise in managing a telco business which was and is still dominated by a few big players. I do not see any competitive advantage YTLPI has over other telcos like Maxis or DIGI.

As for Tanjung Jati, personally I do not think they can achieve financial close for the project to take off. This is a big coal-fired power plant project of 2,000MW to be governed under a 30-year PPA with Indonesian national utility PLN.

With the world trend of going into renewables and more and more international financiers shying away from high carbon projects like coal-fired plants, it is a tall order for YTLPI to get project financing for such a big high carbon project.

Furthermore at current high coal prices, PLN would also not like to lock itself up with such a big coal-fired plant for 30 years. It would prefer building up more renewable projects like solar or geothermal plants or build a smaller coal-fired plant on its own, rather than obligating itself on a big coal plant with 3rd party.

On the Bristol property project, it was just natural for YTLPI to take up as the land sits around where Wessex is located. YTLPI and Wessex have been having good relationship with Bristol municipal council since its take-over of Wessex in 2000.

Another reason was due to strong cash flows of YTLPI which was the one in the position to fund the development of property projects there over next 10 years.

@Observatory, for Jawa Power, YTLPI's effective in JP should be 35%, out of which 20% could be direct and the balance indirect via shareholders' loans or preference shares.

Jawa Power cash flows are strong as it is a 1,200MW coal-fired power plant in Indonesia fully contracted under a 30-year PPA.

The cash flows are steady as the non-fuel margin is secured through a fixed tariff component while fuel costs are fully passed through.

@Observatory, for the Contracted Power Generation segment, the reduction in assets could be due to spare part obsolesence and hence write-off or just sales of spare parts or machine parts after PPA expired.

@cktay & Observatory, as explained earlier, PowerSeraya may suffer small reduction in profits due to high fuel costs. This is partly due to imperfection in fuel and FX hedging, a 1% mismatch could make a sizable difference.

Secondly, there is a lag effect in accounting that results in a reduction in profit when gas prices rise too fast. PowerSeraya generation is almost 99% from piped gas and LNG, very little from heavy sulphur fuel oil. The pricing formulae for piped gas and LNG are different, one based on prior month average HSFO prices and the other based on current month Brent crude oil. On the other hand, electricity sales contracts are priced ahead based on the forward oil prices of the month, some at fixed priced contract for a duration of 12 to 24 months. So if the oil prices are high in current month and prior month, they need to immediately book in the high gas or LNG prices based on current month or prior month averages. Revenue for the month shall be booked in based on electricity contracts that were locked in months before for the current month. Hedging of fuel costs is done within weeks of securing electricity sales contracts so there may be a lag effect in terms of accounting booking as well as hedging book.

Thirdly, high fuel costs naturally push up electricity prices in a merchant market and deter demand. Some savvy customers demand lower non-fuel margin in order to press down the overall electricity prices.

In summary, surging fuel cost is always no good to utilities companies including generation companies.

@kahhoeng, the calculation was correct. The actual net profit of RM48m for the Dec qtr was achieved based on average selling price of USD75/bbl for North Sabah but USD72.02/bbl for Anasuria. Then you will get gross profit of RM192m instead of RM201m calculated in example above based on USD75/bbl all.

Then you deduct RM93m of expenses and RM10m of interest costs, you get profit before tax of RM88.5m. Hibiscus paid an unusually high tax rate in the quarter with tax payment of RM40.2m so net profit is reduced to RM48m.

The non-exec director is too rushed in selling its 2% stakes now at RM1.20-1.34 while the major shareholders are adding. Foreign funds are rushing to take position in Hibiscus just as Warren Buffet taking huge position in OSY in the US.

Maybank is right in recommending Hibiscus with the highest TP of RM1.90 but I think its projections are still under estimating the potential of Hibiscus. Its projected net profit of RM600m for Hibiscus in 2023 at oil price of USD85m is too low, I would estimate it to be RM860m even factoring in a full 33% prosperity tax rate.

With a nett cash position and free cash flows of over RM1.0 billion a year at oil prices at USD85/bbl, Hibiscus would be able to declare 100% earnings as dividend or over 40 sen a share!!!

If oil prices stay at USD120/bbl for a year, free cash flows would balloon to RM2.0 billion a year and dividends might top RM1.00 per share!!!!!!!!!!

Warren Buffet is smart in snapping up OSY even at USD45 per share as its free cash flows would exceed USD20 billion a year, as he believes firmly that OSY share price will more than double from current levels in few months.

Hibiscus will easily double or triple from current levels once the foreign funds and smart money accumulate enough stakes. More upgrade reports will come out in coming weeks.

Anasuria Cluster - production was 2,785 boe/day and North Sabah production was 6,384 boe/day for 2Q2022 (Oct-Dec 2021).

Revenue per quarter = 9,169 boe/day x 92 days x USD73/bbl x 4.125 = RM254m vs actual of RM284.4m. The difference being revenue from gas production.

The cost of production for Anasuria cluster was USD24.31/boe and for North Sabah USD13.06/boe. The weighted average cost of production = (24.31 x 2,785 + 13.06 x 6,384) / (2,785 + 6,384) = USD16.50/boe

Hence, gross profit per quarter = 9,169 boe/day x 91 days x USD(75.00-16.50)/bbl x 4.125 = RM201m

minus expenses and finance costs of about RM100m per quarter, the profit before tax = RM101m per quarter for average oil selling price of USD75/bbl

For oil at USD90/bbl, the PBT = RM(253m - 100m) = RM153m
For oil at USD100/bbl, the PBT = RM(287m - 100m) = RM187m
For oil at USD120/bbl, the PBT = RM(356m - 100m) = RM256m per quarter

If we factor in the additional 9,000 boe/day of production from the recently acquired Rapsol assets, and assuming expenses to increase by 50% to RM150m per quarter, then we shall see :
PBT = (253m x 2 - 150m) = RM356m for oil at USD90/bbl
PBT = (287m x 2 - 150m) = RM424m for oil at USD100/bbl
PBT = (356m x 2 - 150m) = RM562m for oil at USD120/bbl

So if oil prices stay at current level to year end, Hibiscus would make PBT of over RM2.2 billion or RM1.10 per share resulting in a PER of just 1.5x

Of course we need to factor in a higher tax rate of 33% this year, then net profit would be about RM1.57 billion or EPS of 79 sen resulting in a PER of 1.7x.

Media dipping to 48 sen yesterday was a good chance to buy. The fact that it closed up high leaving a tail yesterday reaffirms the uptrend. Yesterday drop is likely a blip due to panicked selling in a weak market. But investors will soon realize that the Ukraine war actually boosts news circulation and demand for news in TV and newspapers. The proposed reopening of border from 1st April will further boost economic recovery and hence ads spend.

@cwc1981, if we assume free cash flows of RM500m from Wessex, then it will be equal to RM500m/8100m = 6.2 sen per share of YTLPower.

As pointed out by Observatory above, annual cash flows contribution from Wessex may range from pounds sterling 60m to 90m (RM330m - RM495m) in past few years.

As electricity market improves in Singapore, I estimate that annual cash flows contribution from PowerSeraya may range from RM150m to RM350m.

Jawa Power contributes steady cash flows of USD20-30m (RM80-120m) a year.

Hence, total cash flows from Wessex, PowerSeraya and Jawa Power may come to RM560m to RM970m a year.

Actual 1H FY2022 cash flows amounted to RM456m annualised to RM912m well within the above estimated range. That was almost 11 sen per share of free cash flows a year.

@Observatory, I would think your assessment of PowerSeraya cash flows is fair and reasonable.

Depreciation charges dropped from above RM300m in 2018 to about RM250-260m in 2019-2021 due to the drop out of depreciation of power assets in Malaysia where the power purchase agreement expired a couple of years ago. So depreciation charges going forward will likely settle around RM260m as you estimated.

The gross profit is a lot harder to estimate as it is a competitive merchant market. I can only say that with more competition taken off (eg. Tuasrping) and electricity demand recovery back on, the gross margin will improve gradually and the cut-throat price dumping in 2017-2018 will likely not reoccur.

Do not forget that YTLPI's associate company Jawa Power too contributes consistent cash flows as it is a mature power plant in Indonesia governed by a long term power purchase agreement.

Assuming a debt/equity ratio of 50%, then the annual capex of RM1,500m shall be funded by RM750m of debts and RM750m of internal funds, leaving Wessex with some RM500m of free cash flows for dividend distribution to YTLPI

On PowerSeraya, the nameplate capacity is 3,100MW made up of about 1,800MW of efficient combined-cycle gas turbines (CCGT) and 1,300MW of less efficient oil-fired turbines and open cycle gas turbines. The less efficient oil turbines and open cycle gas turbines are hardly run as their fuel costs are significantly higher and hard to compete in a merchant market. These old machines are kept to make the nameplate capacity high (as Gencos are not allowed to plant up more than their nameplate capacity unless approved by EMA) and to be entitled to more vesting contracts which fetch higher margins.

The proposed acquisition of 396MW CCGT from Tuaspring will increase its efficient capacity to almost 2,200MW and hence increase its generation market share by 22%.

As said, Singapore electricity market is a competitive merchant market where the pool electricity prices fluctuate every half an hour based on supply and demand. The supply market was tight in 2012-2013 so all gencos enjoyed very good gross non-fuel margin as high as SGD60 per MWh. Vesting contracts as determined by EMA also gave non-fuel margins as high as SGD60 per MWh then. But as more new players enter the market, supply became more than demand growth and electricity gross margin started to plunged to almost zero in 2019-2020. That naturally forced some weaker and smaller players to close shop (i.e. Tuaspring) and eliminate some supply capacity from the market. Then we started seeing gross margin recovering from 2021. It is a cycle depending on when and how much new capacity comes in vs demand growth.

What Hong Leong analyst mentioned of lower profit due to surges in fuel costs is not entirely true and not 100% wrong. PowerSeraya (and most other gencos) tend to hedge close to 100% of fuel cost and FX requirements against secured retails contracts. As you know, any hedging cannot be perfect. A 1% mismatch could have a sizable impact to the bottom line as fuel costs make up as high as 90% of revenue.

PowerSeraya has some very big oil tanks which were used to store large amount of oil last time when the old oil-fired machines were still in use. Now as the oil-fired machines are hardly run so there is no requirement to store much oil for own use, hence the company decided to lease out these tanks to third parties at fixed leasing rates. This is a safe bet business and the company will surely earn the fixed leasing income no matter how much oil the third parties store in the tanks. It used to contribute some SGD20 million gross profits to PowerSeraya every year.

As for oil trading, I think it is rather small and there should be very strict cut loss policy in place. I am not too worried about it.