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.

@Observatory, for Wessex Waters, the tariffs for this regulated asset is set every 5 years as determined and agreed with Ofwat. As you pointed out, the agreed capex for this 5 years will be RM7.5bn and hence the RB shall increase to RM22.4bn at the end of FY2025. As long as Wessex performs according to the set requirements, you will see that its returns are quaranteed for this 5 years. There is a bonus to be gained if Wessex outperforms other 9 water treatment companies in the UK in terms of set KPIs, and Wessex has been ranked 1st or 2nd in the past 20 years among the 10 water companies in the UK.

The capex will be funded at Wessex level with a combination of debts and internal funds generally based on agreed debt-to-equity ratio with Ofwat. So there is no need for YTLPI to pump in any extra equity into Wessex to fund the capex. For regulated assets like Wessex and Electranet, the company itself actually hopes to spend more so that its RAB will get larger and hence the tariff higher. Like Electranet, it has always been looking to expand the electricity transmission network in South Australia, while Wessex always look out for new improvement projects.
The WACC for FY2020-2025 is 1.96% reflecting the historical low interest rate environments in the UK and the low expectation of equity returns of investors there. This obviously cannot be compared with the WACC of Tenaga which is not entirely a regulated asset (essentially only the transmission and distribution arms of Tenaga are considered regulated assets, where Tenaga has to show proof of capex on transmission and distribution as well as achievement of KPIs in order to get to an agreed tariff with our Energy Commission for the transmission and distribution tariffs) The larger generation arm of Tenaga is not a regulated asset as the planting up of new power plant and generation mix is entirely up to Tenaga planning and market forces, not to be agreed with the regulator. Even the critical part of fuel pass-through often does not get a 100% approval, subject sometimes to political considerations. Hence the risk profile of Tenaga is considerably higher than that of a pure regulated asset like Wessex and we cannot compare its WACC with that of Wessex.

No doubt the profit level of Wessex has declined over the past few years, inline with lower interest rates and lower equity return expectation (lower WACC as determined by Ofwat). With interest rates set to go up over next 2-3 years, the WACC for the next 5 years from 2026-2030 should be higher and hence the tariff. With a bigger RAB then, the earnings shall be larger than this 5 years (2020-2025).
I am not concerned at all with the declining earnings contribution from Wessex in past few years as long as the operating matrices are still top ranked. The RAB will increase over time as this is a perpectual asset. Investors there will always be willing to pay close to RAB.

Any reason why LTAT keeps selling BPlant?

@tonywong8, YTLPI owns power plants in Singapore and Indonesia.

Electricity sales in Indonesia are governed by long term Power Purchase Agreement (PPA) which stipulates the fixed capacity charges and energy charges to be received by Jawa Power for capacity made available and electricity generated. The fuel costs are fully passed through so as coal prices went up higher towards 4Q2021, revenue also went up in proportion.

Singapore electricity market is a merchant market where generators sell electricity into a pool with electricity prices changing every half an hour. TYpically generators have a retailer arm to sell electricity to households and users in Singapore and have a contract-for-differences with its own retailer or the encumbant retailers MSSL. IN a nutshell, this is a vertically integrated model where gencos earn a non-fuel margin secured by its own retailer. Fuel costs are almost fully hedged and form a majority part of the total electricity price. So as gas prices went up towards 4Q2021, electricity prices were also raised to fully pass through the high fuel costs while maintaining a rather fixed non-fuel margin. As a result, you see revenue doubling while profit did not.

Aeon just dropped 2 sen in a very bad market yesterday. In terms of technical charts, 25-day moving average line crosses up 50-day MA with MACD lines firmly up after a golden cross last week. The next push should take it to test previous high 1.53 and hopefully can get past resistance 1.55.

With record quarterly profits for Dec quarter and another superb result in the making for the March quarter, Aeon should be on its way to regain past glory with targeted net profit topping the RM200 million mark.

EPF's strategy is hard to comprehend. Bought glove stocks high and sell low now. It sold Astro below RM1.00 and now buy it back at above RM1.00. EPF was lucky to have earned more from the US markets which went up a lot last year to cover for its underperformance in Bursa.

PowerSeraya does not suffer directly from high gas prices, as it always hedges almost 100% of fuel costs against electricity sales contracts. The only negative effect is that when gas prices are high, the electricity prices will be high too as generating companies pass on high fuel costs to consumers. This naturally deters electricity consumption.

THe 3-monthly auction you mentioned is not really an auction but for the energy authority there to determine the vesting contract pricing for the gencos based on forward fuel costs and forex. These vesting contracts are essentially contracts-for-differences (CfD) entered into between gencos and the incumbent market retailer. They provide fixed gross margin for a period of 3 months. Vesting contracts currently cover 15% to 20% of each gencos' total electricity sales.

On the cash flows, the large PPE purchase of RM1.3bn and RM1.7bn in FY2020 & FY2021 was mainly for the equity portion of investments in building the new power plant in Jordan which is at the tail end. In the absence of any new project, capex will be down to minimum once Jordan plant is completed in 2022.

If I look at the 6 month financials ended 31 Dec 2021, operating cash flows were about RM456m before capex, annualised to RM912m or 11 sen per share. That is more or less the free cash flows in a year when there is no new project spend.

Share price is depressed at 60 sen now as the market is full of short term traders, many of whom will have taken profit or cut loss.

I am happy holding on for steady 7.5% dividend yields and further earnings upside.

Sorry, mistake again. We should not just take the RM7.4bn debt at holdco level but the entire debts consolidated at the company which is RM7.8bn + RM20.6bn - RM6.2bn cash = RM22.2bn.

Using the above method, both Electranet and Wessex contribute a total value of RM22bn which just offsets against the nett debts.

YTLPI would be a zero debt company if Wessex were to be sold off at RAB. But I think some of the debts sit at PowerSeraya and Jordan subsi, estimated at SGD1.5bn and USD1.5bn. If we take out these debts ring fenced at PowerSeraya and Jordan, the nett debts will be reduced from RM22.2bn to RM11.7bn, so YTLPI would be left with RM10.3bn of cash at holdco level after disposal of Wessex.

@Observatory, you have got the RAB of each asset from AR. You were right that YTLPI sold Electranet at close to its RAB, not at a premium as I stated before. My apologies.

Wessex has a RAB of RM19.3bn so based on market valuation of Electranet, investors are willing to pay for regulated asset at 1.0x RAB. So Wessex should be worth at RM19 bn plus the RM3.1 bn from Electranet, YTLPI should be worth RM22bn minus nett debts of RM7.4bn or RM15.0 bn or RM1.85 per share at least, not taking into account the value of PowerSeraya, Jawa Power and Jordan power plant.

Most of the debts at YTLPI are ring fenced at subsidiary levels which took up loans to build the assets. Most of the cash at the parent company level is unencompassed and available for future investments or dividend distribution.

It means that if YTLPI found a buyer for Wessex at 1.0x RAB, it would turn a nett cash company instantly with at least RM15 bn of unrestricted cash which is 3x its current market cap.

EPF disposing AEON shares will prove to be a big mistake, just like what it did with glove stocks, chasing high in mid last year then selling low since last year end.

AEON earnings have gradually jumped to the next level from the slumps in past few years saddled with high depreciation charges and high interest costs.

The pandemic has made AEON rethink its strategy and more prudent in expenditure and expansion while embarking on various cost optimisation efforts.

Furthermore, I like its focus on improving customers' shopping experience and increasing online sales. This is important to fence off competition from emerging hypermarkets and retain loyal customers.

I look forward to steady and more sustainable growth in AEON which will pay attention to optimising its financials and rewarding shareholders. It could look at other growth business models of larger supermarket chains in other countries like Walmart in the US and Coles in Australia, eg. opening smaller format stores in mid sized towns for growth.

As long as the business remains profitable and business prospects turn positive with stronger cash flows, I remain invested and will not be surprised if the share price crosses RM1.00 or even RM1.50 in next 2 years. The strong cash flows and potential dividends of 5.0 sen to 10 sen per year will support the share price advancement.

@Observatory, I am not sure who is behind the 11% stakes held by MS but I do not care much. As Syed Mokthar holds 31% and Johari has close to 20%, both savvy investors, the 3rd largest shareholder may be just another wealthy individual who may have insider info on the company prospects or close link to SM or Johari.

@Observatory, I would think the normal maintenance capex should be around RM40m to 60m a year, looking at the actual capex numbers in last 2 years when AEON did not build any new mall.

The PPE is about RM3.1 billion, the bulk of which should be land and building which have long depreciation period of 30 years or more. Using linear depreciation, the depreciation charge of PPE land and building should be less than RM3100m / 30 years = RM100m a year.

There is another RM1.5 billion worth of Right-of-Use asset in the balance sheet, this could contribute a substantial amount of amortisation charge c. RM188m per year.

Else where, the rest of the depreciation could come from depreciation of machinery and equipment which should not be very much, mainly air-conditioning systems, chillers and lighting systems. I am not sure how much these contribute to the depreciation charges.

Anyway, as its past results have shown, I am confident that its free cash flows will be above RM350m per year allowing for RM30-50m of normal maintenance capex.

Its latest report stated that AEON would install solar panels in its shopping malls starting with Taman Maluri mall. It may require a capex of say RM3.0m for a mall that uses some RM100k of electricity per month. It would save up to RM1.0m of electricity costs per year per mall. So operating costs will gradually reduce as it install solar panels in other malls.

I think Aeon would be prudent in any major expansion plan in next 3 years as competition is fierce and malls are quite saturated in major cities. If it does not build any new mall in next 2 years, it would be able to generate about RM700m of free cash flows over next 2 years and to reduce its net debt to zero. Interest costs saving would be at least RM30m per year plus electricity costs saving of RM5-10m per year, free cash flows would increase by RM35-40m per year to about RM420m or 30 sen a year.

Then it would be in a good position to pay high dividends while expanding at a sustainable pace. It has over expanded from 2011-2019 by opening 1-3 new shopping malls every year, spending a lot of capex, getting lots of debts, paying lots of interests and suffering lots of depreciation charges. That is why you see its financials actually deteriorated from 2012 to 2019 and share price dropped from RM3.00 level all the way to RM1.50 in 2019 before pandemic. Depreciation charges and interest costs had increased faster than the incremental earnings from new malls. Cash flows were tight with little dividend.

I would prefer Aeon to selectively expand at a more sustainable manner. With over RM400m of free cash flows a year, it could afford to open a mid size mall of c.RM200-250m each year while distributing RM140m or 10 sen a share of dividends each year. In the year of no expansion, Aeon would afford paying dividends of 20 sen per share.

The assets owned by YTL Power are all long term cash generating units, eg. Wessex and PowerSeraya hold perpetual licence, Electranet with 200 years licence, Jawa Power 30 years PPA, Jordan 30-40 years.

The largest earnings contributor currently is Wessex Waters, so naturally it should contribute the bulk of the SOP valuation to YTLPower. Wessex is a regulated asset in the UK and hence has a Regulated Asset Base valuation agreed with the regulator. Market valuation is usually at a substantial premium to the RAB.

One good example is Electranet which is itself a regulated asset in Australia. YTLPower just sold off its entire stake in Electranet at a huge premium to RAB.

So valuation can vary to a large extent. What I know is that the market valuation of Wessex alone is way higher than the market cap of YTLPower.

Since SOP is hard to determine, so I fall back to cash flow valuation. The free cash flows of YTLPower are so strong that it can declare 5.0 sen dividends every year yielding 7.5%.

Superb quarterly results!!

Net profit jumped up 1.6x y-o-y and 4.8x q-o-q to RM71m.

Strong operating cash flows enabled Aeon to pare down debts by almost RM205m while increasing cash balance by RM122m.

Full year free cash flows amounted to RM378m or 27 sen per share.

Grossly undervalued!!

@Observatory, ya the dividend is unexpected. I thought Media still had a large amount of negative reserves and could not declare dividend, but I was wrong.

The latest quarterly result just blows off expectation. Net profit jumped up 2.8x from Sept qtr to RM29m. It could have been higher if not for an impairment item of RM18m.

Full year free cash flows amounted to RM138m or 12.5 sen per share. Capex is minima at RM8m excluding the one-off payment of RM118m to buy back its corporate office building in Bangsar.

If there is no restriction on dividend distribution due to negative reserves, then Media would be able to declare 100% of earnings as dividend or 5.0 sen per share or RM55m, leaving it with balance cash flows of RM75m p.a.adding to its already-strong nett cash balance of RM188m.

Other stocks with strong cash flows are AEON, DKSH, Media Prima and YTL Power. You may take a look at them. Each has some issue of their own and hence share prices are still at depressed level. Only DKSH has run up after reporting 2 quarters of strong earnings and cashflows.

On its debt level, I do not think we should add in lease liabilities which are mainly long term asset lease / rental commitments. To me these are more of operational cost nature than debt nature.

The debts have been pared down to RM192m. Assuming 5% interest p.a., borrowing interest costs may come up to RM9.6m a year. With free cash flows over RM100m per year, interest cover ratio will be well over 10x, very comfortable.

That is why I thought the company does not need to carry out aggressive debt repayments in coming months.

@ Observatory, ya free cash flows are usually defined as operating cash flows after capex. But if a company is embarking on aggressive expansion, I tend to exclude the expansion capex to see how a normal year free cash flows will look like.

How I derived free cash flow of RM116m before capex? I simply used the operating cash flows of RM165.4m minus interest costs of RM13.5m minus payment of principal portion of lease liabilities of RM34,6m minus hire purchase payment of RM1.0m.

I just used the entire amount of interest costs of RM13.5m which has included both the interest portion of lease liabilities and interest costs of bank borrowings. Both interest cost items need to be deducted from operating cash flows.

Even we allocate RM90m of expansion capex for 2022, the company will still have RM140m of free cash flows for debt repayment and dividend distributions, or 36 sen of FCF or 11% of current share price.

Late last year when I calculated out the FCF before this exceptional quarterly result, I estimated operating cash flows of RM160m-180m before capex. I assumed capex of RM60m, leaving FCF of RM100-120m or 25-30 sen per share. The share price then was trading at about RM2.00, so FCF was estimated at 12.5%-15.0% of share price making it a steal.

On short term share price movements, I expect some further upside to RM3.60-3.80 supported by company share buyback. On the flip side, major shareholder Vincent Tan has been selling its stakes together with other directors.

So there will be downside risks after the almost 70% surge in share price in past few weeks. Trade with caution!

@Observatory, it is good to hear from you again in this forum.

My estimates for BJFood gross margin is 48%, not too far from your 50%. I calculated that the fixed costs were about RM35m per quarter plus depreciation & amortisation charges of RM29m = RM64m slightly lower than your RM69m per quarter.

The key to the 3.5x increase in net profit for 2QFY2022 was obviously the 50% increase in revenue in 2QFY2022 compared to 1QFY2022. The reasons given were higher priced products, Christmas seasonal promotions and re-opening of economy after covid cases went down from Oct 2021. Nonetheless, the quantum of revenue increase still took everyone by surprise, hence the limit up of share price after result announcement.

I do not think Kenny Rogers contributed much profit after turning around so it was likely to be much higher mobility of customers in Q2 supported by continued strong sales from drive-thru and takeaways.

If this is really the factor, then we may expect lower earnings in coming Q3 and Q4. Maybank IB said that Jan 2022 sales had come down c.10%, so earnings may take a larger hit. Q4 will be worse as there will be one month of puasa before Hari Raya.

Yet, BJFood earnings for FY2022 will still be remarkable and more so on its cash flows. It generated about RM116m of free cash flows (before capex) in H1FY2022 which was exceptionally strong. The company managed to pare down borrowings in 1H by RM116.88m to just RM191m.

Just imagine that if 2H earnings can maintain at RM50m, full year cash flows may exceed RM230m which may be used for expansion and debt repayments. Assuming an average of RM70m will be used for expansion, then there will be RM160m free cash flows available for dividends.

The current debt level is quite optimal hence further debt repayment will not be as aggressive as in 1HFY2022. Free cash flows may be over 40 sen per share!

Lousy management, no long term vision, poor project execution, no cost control, heavy directors' fees, related party transactions to squeeze cash out of company, useless company to invest in.

No use even it can get another RM5 billion worth of new projects, most will result in heavy losses for the company while project managers cream off fat fat commission and tips.

@Johnzhang, agree that there will unlikely be much production increase of CPO in 2022. As long as CPO prices remain above RM5,000 per tonne throughout 2022, I would be very happy and am sure analysts will upgrade plantation stocks when average CPO prices remain above RM5,000 until April 2022.

Patience pays off for you. Well done!


Posted by Johnzhang > Feb 10, 2022 3:45 PM | Report Abuse

@Dragon328, to be accurate I only said CPO will stay at high level as supply of all edible oils are affected by climate change , labour issue and lack of investment in the past few years while demand continue to grow . As long as there is NO bumper harvest for the competing oil crops, mainly soya, canola and sunflower seed, which is likely the case due to frequent wild weather swing, CPO will stay well above the past average level benefiting oil palm growers . I think there will be NO production increase for CPO in 2022 too. CPO can not continue to go up to the sky . Price level will find its equilibrium level one day and I believe the equilibrium level is much higher than the average of past 5 years .

Current CPO spot and futures prices are very high above RM5,000/MT and retail investors like Calvin and John Zhang keep saying CPO prices will continue going up.

But why are the forecast average CPO prices for 2022 by all local analysts so low:

CIMB - RM3,600/MT
MBB - RM3,200/MT
Affin - RM3,300/MT
HLB - RM3,500/MT
Kenanga - RM3,500/MT

The average CPO YTD Feb is well above RM5,500/MT. In order to achieve an annual average of RM3,500/MT for 2022, the CPO prices will need to drop to RM3,100/MT for the 10 months from March to Dec 2022.

How likely would that be?


Posted by calvintaneng > Feb 10, 2022 1:55 PM | Report Abuse

Palm oil production down

Canada canola oil failed

Right now Brazil too much rain and Argentina too dry impact soybean

All three Vege oil production got shortfall

Unlike steel or crude oil there is no way to ramp up production

What will happen then

Answer is only two

1. Very very high prices for palm oil, canola oil and soyoil

All screaming with Colossal once in a century profits

2. World famine

Then palm oil will be as expensive as liquid gold