Posted by Value Investor Coo1eo > 2022-04-22 12:21 | Report Abuse

good analysis.....tell me. will the interest impact the profits moving forward? ring fenced or not.

Posted by dragon328 > 2022-04-22 14:58 | Report Abuse

Higher interest rates may not have direct impact on its profits going forward. Firstly for existing project like Jordan power plant, financing is secured on project financing basis ring fenced to the project company level based on a fixed margin over LIBOR or similar. Typically the project company will enter into interest rate swaps to protect itself from interest rate fluctuations over the tenor of the project financing.

Posted by dragon328 > 2022-04-22 15:01 | Report Abuse

Secondly for existing loans already secured under Wessex or to be secured for its capex expansion plan, the liquidity in the UK is huge and any interest rate movement will be taken care of by the water tariffs that always reflect cost of debts and level of gearing. For you info, the water tariffs for every 5 years will be set higher when interest rates are seen moving up to properly remunerate the 10 water companies in the UK for spending capex to maintain or upgrade the water assets there.

Posted by dragon328 > 2022-04-22 15:03 | Report Abuse

Thirdly for PowerSeraya existing loans, interest costs will be higher as interest rates move up. This will be a strong reason for YTLPI to list up a portion of PowerSeraya stakes and raise money to pare down its borrowings.

Posted by dragon328 > 2022-04-22 15:04 | Report Abuse

Lastly for future projects, interest costs and costs of doing new projects will be higher as interest rates move higher, but this disadvantage is felt by everyone else so it will not impede YTLPI's advantage in securing good lucrative projects like the green data centre deals or power export to Singapore.

Posted by ValueInvestor888 > 2022-04-22 15:13 | Report Abuse

Not so simple...

Singapore business may likely give you negative surprises due to the fact that Singaporean govt is too smart to take advantage of businesses that provide utility services. This is not as simple as IPP project in Msia.

Posted by ValueInvestor888 > 2022-04-22 15:15 | Report Abuse

Plus, the mgt yet to give the market confidence they are able to deliver after the end of IPP project. (IPP project is like strike a lottery once in a lifetime). It has many failed project like Singapore operations( yet to give a good return), YES project etc

Posted by dragon328 > 2022-04-22 15:24 | Report Abuse

ValueInvestor888, true that Singapore government is smart and they were very smart in 2013 when they brought in LNG into Singapore market and crashed the elctricity supply market pricing. But the utilities companies in Singapore have been taken over by international investors like YTL Power and China / Japanese owners, and they are not stxpid. All have learnt the mistake of signing up too much LNG in 2013 and suffered poor generation margin from 2014-2020, and they will not make the same mistake twice next year.

Posted by dragon328 > 2022-04-22 15:27 | Report Abuse

It is an unfair statement that the management of YTLPI has many failed project like Singapore operations. It is true that they had not been able to find good deals since 2009 when interest rates were pressed to near zero and asset value was inflated. I would rather wait for the right opportunity too strike rather than buta-buta chasing high asset value with single-digit returns.

Posted by dragon328 > 2022-04-22 15:31 | Report Abuse

The investment in PowerSeraya was a huge success, contrary to most belief. What I know is that YTL Power has recouped all its equity money put in this SGD3.8 billion deal to acquire 100% stakes in PowerSeraya during the few years when generation margin was good in 2009-2012. Just imagine that an equity money of more than SGD1.1 billion was gotten back within 3-4 years and debts at PowerSeraya reduced by few hundred million dollars. Now left is still 100% stakes in PowerSeraya that is the second largest power plant in Singapore. You need to know that power generation licence in Singapore is very very hard to get, even harder than getting an IPP licence in Malaysia. An IPP licence in Malaysia may last just 21 years but a generating licence in Singapore lasts forever.

Posted by Sslee > 2022-04-22 15:59 | Report Abuse

If I know any share will be 10X, I will just keep quiet and keep buying it with my monthly income.
Wonder why the author need/desire to write long long to the world that YTLpower is potential a 10Xbagger?

Posted by DannyArcher > 2022-04-22 16:04 | Report Abuse

+10x or -10x?
YTLP been going down for so many years
Is the management interested in growing the company?

I see many retailers buy stocks based on previous performance.
They think all stocks will eventually go back to their previous high, like AirAsia.
If stock investing is so easy, where got people lose money.

YTLP can 10x? Then Public Bank can 100X.

Posted by dragon328 > 2022-04-22 16:10 | Report Abuse

Furthermore, electricity market in Singapore is cyclic and YTLPower has managed to recoup all equity investment before the market entered into over-supply situation and weathered through the long period of low margins from 2014 to 2020, now entering a margin expansion phase in next few years. There is a real possibility for PowerSeraya to earn over SGD 300 million a year again just like it did in 2007-2012. Just imagine if it does, then PowerSeraya will be able to pare down borrowings to near zero in next 5 years and this investment is all free. YTLPI's next generation and next next generations will be able to enjoy the fruits of investment for many more years to come.

Posted by dragon328 > 2022-04-22 16:30 | Report Abuse

Sslee, why do you think Kook Yew Yin keeps promoting steel counters and Leno and yourself promoting Insas?

Posted by dragon328 > 2022-04-22 16:39 | Report Abuse

Sslee, I have read what you wrote about Insas and how undervalued it was. I did buy some Insas but unfortunately the timing of entry was not right and now I get stuck in it. If I had a fixed monthly income like yourself, I would also slowly accumulate good stocks like YTL Power and enjoy the multiyear expansion rewards and steady dividends, unfortunately I do not have a fixed monthly income. I have to put in money earned from investment to buy stocks like Insas and YTL Power, and most people want their investments to return positive gains as soon as possible.

Posted by nicholas99 > 2022-04-22 16:59 | Report Abuse

because this shark stuck already. haha. no bilis can help you. pls promote to bigger fund house.

Posted by ValueInvestor888 > 2022-04-22 17:16 | Report Abuse

dragon328, thank you for sharing for Ytlpower. YTLPower has been on my watchlist but it is still not convincing for me to invest until they really shows increase in profit qoq or yoy.

Posted by ValueInvestor888 > 2022-04-22 17:19 | Report Abuse

Another concern is a lot of family members are holding key position in the YTL group like that of Leong Hup. You see their share price performance over 10 years of the 2 groups you know there are some similarities...

Posted by Philip ( buy what you understand) > 2022-04-22 17:24 | Report Abuse

This is pure nonsense

1. ytl communications is INA super red sea market, with Digi and maxis and celcom already big spenders in a very high capital cost business.
2. Utilities are generally low margin, high stability and very very high maintenance and upgrade and expansion cost. Why did hyflux go bankrupt in the first place? Debt. How much debt is seraya taking? Insane.
3. Let's look at comparative analysis, how many utility companies have you known that have gone up 10x in 2-3 years? They are known as slow growers got a big reason.
4. High debt companies usually get very low profitability. The reason why Berkshire is a huge monster in the market is because it doesn't utilities debt to grow its utility business. But do you see it growing 10x even with cash expansion? I don't. So why would ytl be the exception to the rule everywhere? Can you share some other exceptions to the rule where debt fueled listed companies can grow to 10x value in a few years recently?

Posted by dragon328 > 2022-04-22 20:23 | Report Abuse

Philip, you are a veteran investors and a veteran in i3 forum and I am just a small investor trying to make some money from hardwork research. I will try to reply to your points:
1. Yes telco is a high capital business and DIGI, Celcom and Maxis have spent a lot to get to the positions they are in now. If YTL Comms tried to spend the same amount of capex to penetrate the market held by these telcos, it would be a suicide. But now the game has changed. The market is coming to 5G era and the good thing is that DNS is going to spend the heavy capex to build the 5G network and each telco just pays the equal access fee to roll out the 5G business. The telcos have a choice to subscribe for some equity in the network owner but it is not mandatory. The 5G pie is huge enough to accommodate 5 players and how much market share each can get will depend on their marketing effort and return expectation. I do not see it a big difficulty for YTL Comms to get a 15% market share out of 5 service providers. The fact shows that it is a high margin business with DIGI EBITDA margin at 50% in past few years.

Posted by dragon328 > 2022-04-22 20:33 | Report Abuse

2. Yes utilities business has high stability and requires high capex for maintenance and expansion. As in the case of Wessex being a regulated business, high capex is a good thing as it will increase its regulated asset base (RAB) faster and the water tariffs there depend on RAB multipled by the agreed WACC to provide a fixed return to water companies. Yes, Hyflux went burst as it entered into power generation business at the wrong time when the electricity market was entering an over supply situation. It is a cyclic business there with merchant electricity market, I believe Hyflux decided to go into power generation (away from its water business) due to the high power generation margin before 2013 but it was not aware of how bad the over supply situation might get it into trouble. Again it all comes back to the management capability and its investment strategy to see if an investment goes well or goes burst. YTL Power bought into PowerSeraya at a bargain just after Lehman's Brothers collapsed so Temasek was willing to sell. At good times like 2005-2007, no one would sell a controlling stake at a bargain. Again, YTL Power is buying over Hyflux at a discount to its asset, and at a price even cheaper than building a new power plant. You need to wait patiently for such an opportunity to scoop up good assets at a bargain price. If you read carefully what I wrote in the article, for this investment in PowerSeraya, YTL Power had long time ago taken back all its equity money, leaving some debts pushed down to the asset level.

Posted by dragon328 > 2022-04-22 20:41 | Report Abuse

3. Utilities are long term assets and provide long term stable returns, you do not expect a utility company to give you 10x returns in short period of time. But if you have patience, buy one at a dsicount and hold them long enough then sell it off at a premium at the right time, they can give you many many times returns. YTLPI just did that with Electranet with 25x returns of equity money in 20 years. But now we are talking about a share price of a stock that may go up 5x to 10x in 2-3 years. There are many examples recently. In Bursa, Yinson went up from RM0.30 in Mar 2013 to RM3.50 in July 2019, giving investors 11x returns in 6 years. It is also in a business with huge capex but with the right investment decisions, Yinson managed to bag lucrative contracts to grow big. DNex share price shot up from RM0.20 in Jan 2021 to RM1.33 in Feb 2022, giving a 6.5x returns in just one year. Hibiscus share price increased from a low of RM0.24 in Mar 2020 to RM1.38 in Mar 2022, a 5.7x increase in 2 years. Hibiscus may become a 10x bagger if it continues going up another 50% as oil prices remain hign above USD100 per bbl.

Posted by dragon328 > 2022-04-22 21:08 | Report Abuse

4. Yes companies with high debts usually have low profitability but sometimes in order to expand you need to borrow, it cannot be using 100% equity money to acquire another company as equity money is always more expensive than debts. Warren Buffet did invest in utilities company like the railroad company BNSF with some borrowings and he thought it would be a key asset for Berkshire a century from now. DNex did borrow money to buy over SilTerra, otherwise it would have missed this opportunity. HIbiscus also need to borrow in order to take over Rapsol assets that will give it doubling oil extraction capacity. Warren Buffet bought into BNSF at a bargain and it may have been a multi-bagger for Berkshire if the asset is sold at a premium. Warren Buffer also bought into OXY, an oil shale company at a good price though it is a debt-laden company. Do you know that OXY cash flows are now so strong that it could repay all of its USD10 billion debts within this year if oil prices stay at USD100 per bbl? OXY share price dropped to as low as USD 10 in Mar 2020 and now trading at USD60, already 6x higher. I expect OXY share price to reach USD100 later this year or next giving Warren Buffet a 10x bagger. Debts are not scary if the company knows how to use it properly. Even Yinson needs to borrow heavily with debts now over RM8.0 billion, otherwise it will not be able to grow and bag new contracts. Anyway, YTL Power is a nett cash company now at holding level, with debts ring fenced at subsidiary levels.

Posted by dragon328 > 2022-04-22 21:22 | Report Abuse

What I am trying to say is that for YTL Power to be a 10x bagger, it will need to do all the right things. I am not a short term trader and do not expect YTLPI to shoot up few times in next few weeks or months. It holds long term assets that take time to deliver value to the holding company. YTLPI will need to take initiatives to monetise part of the assets at a premium price at the right time, to continue managing existing companies for them to maximise profits, and to look for new lucrative projects. If it does the right things, then it may be worth 10x higher. Of course whether the share price will move up so much will depend on whether the company can deliver the profit growth and declare higher dividends in next 3 years. I am a freelance researcher and like to share what I analyse and why I think it is undervalued to other like-minded investors. YTL Power is coming at a low base now, way cheaper than few years back. If analysts gave a fair value of RM1.60 to YTLPI in 2015, why now give lower for a company with stronger footing now and embarking on next growth phase? Please note that Wessex's RAB is now 30% higher than in 2015, Electranet has been sold at 5x higher than the value given by an analyst, the company is in nett cash position, PowerSeraya is going into a tight supply market, and the green data centre park has started with a bang.

Posted by Sslee > 2022-04-22 22:08 | Report Abuse

Under utility portfolio, I actually hold Ranhill and Ytlpower. I already cut loss on Ranhill but still keep ytlpower for the reason I do not mind waiting as long as ytlpower still give me cash dividend.

Posted by Sslee > 2022-04-22 22:26 | Report Abuse

By the way Insas is the most undervalued stock in Bursa.
As of how long it will remain undervalued that is a million dollar question?

Posted by KINGV > 2022-04-22 22:59 | Report Abuse

Dragon328, I think you have put in lots of efforts in your research for the above article. Thank you. One may or may not agree with you on certain aspects but I think you have brought out the several positive and recent developments of YTLP quite eloquently. Moreover at current prices (before it goes too high) of between 70 and 75 sen and with decent dividends around the corner based on history (I always believed a bird in hand......) I am positive about this counter.

Posted by Siow > 2022-04-23 01:16 | Report Abuse

the interest rate hike coming. which will result ylt power debt to be higher. that would not affect profitabilites?

Posted by Philip ( buy what you understand) > 2022-04-23 06:06 | Report Abuse

FYI yinson is 18% of my portfolio( previously larger except now smaller in relation to pchem gains), so I know yinson business exactly. For yinson their contracts are mostly bare boat charter which is just FPSO conversion and rent out on a daily basis to users. The O&M is a different contract some of which awarded to yinson others not. The point why yinson is different is that their rates have nothing to do with the price of oil or the sales of which unlike armada and sapura due to the simple fact that they have no cost implications on the price of and demand of oil energy.

For ytl as you definitely know on supply, demand and pass through cost of energy( or lack thereof) will definitely affect their long term profitability.

For Berkshire energy ( instead of BNSF), if you look so comparative analysis and look at Greg Abel comments and thoughts on investing in utilities you will know why ytl power is definitely not something that will 10x in a few years( as per your article title). I'm sure ytl will continue to generate cash flow and dividends to users, but to claim 10x?

For seraya you are speculating on something that has yet to happen, which until it does I think is a very dangerous way to invest. One should always invest in a business where the asking price is at a margin of safety to the earnings generated.

Berkshire has a 8.5 PE valuation, why? Because the business is highly predictable, fully saturated( not like coke going to sell to aliens in Mars), and in most cases very simple to understand.

YTL is also a very predictable, easily understood business. I have had discussions with ytl investors in my telegram group since last year on the merits, and the results and their belief still have yet to surface.

In any case, how much of your portfolio holdings do you expose to YTL? If it is a 10x to you, I would expect it to be a very large percentage of your portfolio. May I know how high is your conviction level on this?

As for Insas, it is a nonsense company that I would not touch with a ten foot pole. In fact I have increased my exposure into Tesla, Netflix and BABA during this discount period, as I believe over the long term the best way to invest is in companies with huge growth TAM, huge cash flows generators and asking for cheap to fair prices.

For a PE expansion and long term TAM runway, when big sp500 companies are asking for significant discount, the best thing to do is to grow position over time. We cannot time the ups and downs, but we can time the long term performance of the company.

Do you really trust the management of YTL to grow your funds over time?

>>>>>>
Yinson went up from RM0.30 in Mar 2013 to RM3.50 in July 2019, giving investors 11x returns in 6 years.

Posted by Philip ( buy what you understand) > 2022-04-23 06:13 | Report Abuse

This I totally agree. Too many investors buy with and eye of what happened in the previous years ( like sslee with his Insas and it's decade plus inari jackpot). However to make big money we need to buy with an eye for the future ( like my previous investment in topglove, pchem, yinson, QL etc. Of course one cannot escape especially with my bad experience in serba dinamik ( fraud case) but I learned a very important lesson too on finding trustworthy management and how actions and claims are different.

One common theme that recurs: very hard for a company to go bankrupt if they don't have any debt. That has been my guiding principle now in investing in companies. Knowing how to look at good debt and bad debt.
>>>>>>>
Posted by DannyArcher > 14 hours ago | Report Abuse

+10x or -10x?
YTLP been going down for so many years
Is the management interested in growing the company?

I see many retailers buy stocks based on previous performance.
They think all stocks will eventually go back to their previous high, like AirAsia.
If stock investing is so easy, where got people lose money.

YTLP can 10x? Then Public Bank can 100X.

Posted by Sslee > 2022-04-23 07:21 | Report Abuse

Too many investors buy with and eye of what happened in the previous years. Agree and for the current year, you can safely invest in Plantation stocks.

KUALA LUMPUR (April 22): The crude palm oil (CPO) futures contract on Bursa Malaysia Derivatives ended firmer on Friday, continuing its uptrend as the expectation of stronger exports going forward helped to lift sentiment, a dealer said.

The low vegetable oil stocks are also spurring demand in the palm oil market, according to palm oil trader David Ng.

Palm Oil Analytics owner and co-founder Sathia Varqa said the market attracted renewed buying interest towards the close after trending downhill for much of the day.

At the close, the CPO futures contract for May 2022 perked up RM63 to RM6,871 a tonne, June 2022 gained RM78 to RM6,625, July 2022 rose RM42 to RM6,355 and August 2022 climbed RM36 to RM6,162 a tonne.

Posted by sensonic > 2022-04-23 08:10 |

Post removed.Why?

Posted by Windy1974 > 2022-04-23 10:11 | Report Abuse

In financial planning, they teach you to take less risk the closer you are towards retirement. Typical asset allocation in your 20s 80% equities 20% fixed income 30s 60% equities 40% FI. As i am approaching 50s and plan to retire in 7 years time, theorectically i should have 80% FI and 20% equities. My current asset allocation is 50% equities 50% FI. By the time i retired, i intend to have 40% equities 60% FI. For me, FI assets are dividend derived equities with relatively stable dividend streams. I currently have 10% of my money in YTL just recently acquired partly because i believe their profit would improve going forward and also the good chance with digital bank. (Even without i am ok) I am very impressed with YTL management since 2005 when i visited their project engineer in their office in Bukit Bintang. I was pleasantly surprised how little manpower were handling multi billion businesses. It was such stark contrast to Ranhill with posh Grade A office and legion of PMT. I was recently staying in AC Marriott Kuantan with a nightly rate of closed to RM300. My first impression was not good. Dated exterior yet RM300?? However, i noticed they were the best hotel in term of cleanliness and service in Kuantan. Explained the premium they commanded. Any other hotel with such exterior would be lucky to command RM200 per night. Same for JW Marriott which i just checked out yesterday. Such impeccable customer services. This speaks a lot about YTL management. Indeed, i agreed that the Yeoh's are conservative people. Is that wrong? That's what i want at my retirement age. Most important is they are not conservative but keep all the money for own enjoyment (MUI?)
Everyone wanna look for the ultimate growth stocks. If you are like Philips, great. However, majority are not. So, let's keep to prudent investing disciplines. Let's not dreamt of 100% compound return which many gurus claimed in i3. Philips compound return of 20 plus percentage already near Warren Buffett status if he could sustain over 30 years period. Let's just settled for 10-12% compound because majority of us are just tom dick and harry.

Posted by ShawnT > 2022-04-23 14:58 | Report Abuse

Received this link YTLPower x10, and first time user for i3invest. good write up Dragon, keep up the good work, i believed YTLpower could be rerated toward the pricing table you mentioned of RM3.5 or RM7.5 depending how well they deliver, what i know now is that at least the worst could be over and buying share is all about the timing for good company. This YTLpower is definitely a good time to accumulate now. A local bursa company which hold global assets

Posted by veterinarian > 2022-04-23 16:29 | Report Abuse

Buy what is necessity is always safe

Posted by dragon328 > 2022-04-23 20:47 | Report Abuse

Congratulations to Philip on his Yinson giving him a 11x bagger. Agree with you that to make big money, you need to have an eye for the future. I believe one who bought into Yinson near RM0.30 in 2013 must have had good foresight or high convection in the management to deliver the growth. And there were good reasons why Yinson were trading at depressed level in 2013, as there were too many uncertainties out there and Yinson had not delivered the results. But you bought into it at 30 sen if you knew the business well and can reasonably project that business would start looking good for Yinson. It is a similar case now with YTL Power that trades at near decade low for some reasons, but I know very well that things are starting to get better and better for this company. I have over 15 years of working experience in the power industry and I can see that PowerSeraya will be doing well again from next year. To make big money, don't you have to see things faster than others and see things others don't? When you see the company delivering earnings jumps, then it will be too late to chase. Now it is the time to accumulate while it is still low.
I will not get you to chase if it has doubled in share price. On the contrary, its share price has dropped by half in past few years and the likelihood of it doubling back to RM1.50 is high. I have high convection in the management delivering this time. Even if share price does not move up, I will still enjoy good steady dividends of over 6.7% p.a. Can you tell me which other stock that can give dividends yields of over 6.7% p.a. and may have chance to double its share price in 2-3 years?

Posted by dragon328 > 2022-04-23 21:02 | Report Abuse

Windy1974, agree with you that YTL management is conservative. I have a friend who had a relative working inside YTL Power. He told me that the key management team in YTL Power was just a small handful of people but included all the necessary expertise in technical, commercial, legal, environmental etc. The management structure is lean and the bosses do not take home big fat fees like Genting boss. At bad years, the directors voluntarily forego their bonus and pay rise.
For new projects, the team is even more conservative. They would look into all possible risks for each project and try to find ways to mitigate each risk whether it is equipment risk, technical performance risk, accidents, country risk, counterparty risks, legal issues, environmental issues. When they finally agree to a contract, you can rest assured that all the risks are well covered and the investment is secured.
Just like when they bought into PowerSeraya, the timing was right when Temasek was desparate to sell and the electricity market was good. The acquisition was good otherwise no banker would lend to them at the time when Lehman's Brothers just collapsed and the world economy was going into recession. That showed to me that banks and bankers had high confidence that YTL would deliver and PowerSeraya would be able to serve its debts.
When YTL Power wanted to buy into the troubled Hyflux power plant, it sent me a signal that they knew the timing was right again to strike, meaning that they believe the market conditions in Singapore would be good again and they would make back money very quickly.

Posted by dragon328 > 2022-04-23 21:08 | Report Abuse

I am confident that YTL Power will be able to declare higher dividends as soon as this FY2022, given that things are getting better in Singapore and they have received a good handy cash of RM3.05 billion from the disposal of Electranet.
I would prefer them raising the annual dividends going forward rather than a one-off special dividend. Save half or RM1.5bn for future projects, the remaining RM1.5 bn cash may be used to raise up dividends by 2 sen to 5 sen every year for the next 5 years.
When dividends are raised to 10 sen per year in next 2-3 years, I do not see any reason why share price will not go back to previous level of RM1.50-1.60 as in 2015-2016 when dividends were 10 sen.

Posted by ImCK > 2022-04-24 12:17 | Report Abuse

YTL more safety got cement business also YTL power

Posted by pang72 > 2022-04-24 16:15 | Report Abuse

Good sharing

Posted by dragon328 > 2022-04-24 17:44 | Report Abuse

There are three water utilities companies listed in London stock exchange: United Utilities, Svern Trent and Pennon. They are trading at PER of 20x to 36x, dividend yields of 4.67%, 3.35% and 3.23% respectively, and 1.27x Regulatory Capital Value (RCV), 1.42x RCV and 1.488x RCV. Therefore, it is not a dream for Wessex to be listed at 1.5x to 1.6x RCV considering it being a top ranked water company in the UK.

Posted by observatory > 2022-04-26 00:52 | Report Abuse

Dragon328, great sharing!
In actually took me two separate readings over two days to finish your analysis and all the comments here. I think this blog could serve as a good placeholder for serious discussion on this stock.

I have two concerns, which I believe we briefly discussed some time back. I wonder whether you've factored into your projection.

Wessex Water - The allowed regulatory return for 2020-25 has been reduced. I got the impression in your analysis that it was due to the low interest rate environment then. Therefore it may revise upward in future periods if inflation goes higher.
However as mentioned in the CIMB Apr 22 report (page 3), "UK (Ofwat) has determined for Wessex Water will cut average bills by 13.0% in real terms in the 2020-25 period". It seems that the regulator also keeps increaing the standard, and Wessex Water has to continuously raise its efficiency just to stay in place.
Even though the RAB continues to build up, Wessex Water needs to strive very hard just to maintain its profits.

Selling RE from Kulai solar farm to Singapore - In late 2021 Malaysian government banned renewable energy export to Singapore. So the company, probably with the help of the Johor state, needs to get the federal government to lift the ban for the venture to work.
Then today I read in the paper that Johor Chief Minister talked about setting up data centers in Johor powered by renewable energy. It suddenly strikes me that could it be connected to the earlier ban. Could that Malaysia want to keep its renewable energy (solar farms require large amount of land, a precious commodity in Singapore) to develop data centers as alternative to Singapore?
Of course nothing may stop YTL Power from developing both solar farm and data center in Johor. However it will then be difficult to make any profit projection as the situation is so fluid.

Look forward to your opinion on these two points.

Posted by dragon328 > 2022-04-26 10:13 | Report Abuse

Hi Observatory, good to hear from you in this forum. Let me try to provide some thoughts on your two concerns:
(1) Yes Ofwat has determined that for the 5-year determination period, the tariffs for Wessex will be lower than previous 5-year period on lower interest rates and higher performance standards. We can see that earnings contribution from Wessex to YTLPI has dropped from above RM200m per quarter in 2019 to now about RM150m per quarter in 2021. But there are a number of ways that enable Wessex to maintain similar dividend payouts as in previous 5-year period:
(i) to continue outperform peers in Ofwat ranking and get bonus payments which may be 3% - 5% of revenue or 15-25 million pounds
(ii) to get various grants in its business segments, for example Wessex received a total of 7.747 million pounds in FY2021
(iii) disposal of non-core assets, eg. disposal of assets raised cash of 8.9 million pounds in FY2021
(iv) to raise more debts to cover planned capex, eg. Wessex raised new debts of 395 million pounds in FY2021 compared to planned capex of 246 million pounds
(v) to use innovative ways and technology to help reduce capex but maintain performance and quality of service

Anyway it was disappointing to see a lower tariff determined by Ofwat in early 2020. I think water companies will fight for higher tariffs come 2025 for the next 5-year period of 2026-2030, given that interest rates will have increased a lot and each has higher regulated asset base then. We may see a quantum jump in earnings from Wessex from 2026 hopefully.

Posted by dragon328 > 2022-04-26 10:21 | Report Abuse

The other way to quickly raise funds for Wessex and for YTLPI would be for YTLPI to list up certain stakes of Wessex on London stock exchange. As I pointed out earlier, the 3 listed water companies there are trading at 1.27x to 1.488x RCV. So if Wessex issued say 20% new shares for listing at 1.5x RCV, then equity valuation would be about 3.0 billion pounds and Wessex would raise cash of 600 million pounds to fund its capex for next 4 years and to pare down debts. YTLPI might list up another 10%-20% of its stakes in Wessex to take home cash of 300-600 million pounds to realise part of its investments at a premium now. YTLPI might buy back Wessex shares should it trade at lower valuation in later years. For instance, the listed water companies there have seen their share prices fluctuating in a 50% range, or -30% to +20% range. Let the market determine its value and YTLPI being the major shareholder and long term investor may just add stakes while its valuation is low and sell a little more if valuation is high.

Posted by dragon328 > 2022-04-26 10:37 | Report Abuse

On your second concern, Malaysia government might have its considerations in issuing a temporary ban of renewable energy export as it might want to raise the renewable energy mix in the country power generation to a higher level by 2035.
But sunlight is free and abundant and land is still cheap to make solar energy very affordable here. There are many developers small and big trying to get into renewable energy sector, taking clue from the over 100 bidders in the last round of large scale solar power bidding by Energy Commission. There is no reason why renewable energy should be banned further if domestic renewable energy projects are plenty and many developers here are pushing for solar energy projects including rooftop solar installations.

As the Singapore power import project is real (and sizable and lucrative) and it has attracted many international developers to participate, as far as an Australian consortium planning installing mega solar farm in Darwin and pulling an undersea cable of few thousand km to Singapore. This tender is open to all Malaysia consortium including Tenaga, Malakoff and any company linked to the Johor royal family. Therefore, there is no reason why Malaysian government would ban such bid attempt by a Malaysian consortium to participate in this tender and export renewable energy to Singapore, as it will create new jobs here, encourage good use of land in Johor and development in surrounding areas and enable the Malaysia company to make good money and bring in foreign money. How fast these local companies and Singapore government can lobby our government to agree to the power export to Singapore, I am not sure but good projects like this will come to fruition sooner or later.

As for data centre development, it is a different game from the power export to Singapore. Building data centre in Johor is a no-brainer winning strategy as I have explained in the article the electricity price difference between a solar farm in Johor and in Singapore. Obviously Johor Menteri Besar saw the opportunity too and hence local companies to set up data centre in Johor powered by renewable energy. This is going to be big and going to be the new game of the year.

Posted by observatory > 2022-04-27 01:24 | Report Abuse

Dragon328, thank you for sharing your opinions.

I'm not sure if YTL Group is keen for its subsidiaries to have own listings. That would have introduced another layer among the listed entities. I also feel that even with subsidiaries listed, investors may continue to assign a hefty discount at parent level. The Genting group is an example (of course, not helped by investors' corporate governance concern)

Data centers will be a good business to get in. In China the central government designate certain poor provinces like Guizhou as priority data center areas, to help them to leapfrog their development. In Malaysia analysts like TM and Time as data center plays. However while we may have cheaper RE, Singapore has advantages in terms of larger MNC base, international fiber connectivity, talents and so on. Johor and the federal government need to up their game if they want to grab a slice of the market from Singapore to JB.

Posted by dragon328 > 2022-04-27 10:55 | Report Abuse

Observatory, whether YTL Group wants to have separate listings for its subsidiaries will depend on whether it will create value for the shareholders. If it can list up a subsidiary at a premium valuation to its own, it will be able to unlock value of that subsidiary. And it will be pure cash proceeds coming in from monetising part of its stakes in subsi. Another advantage of listing up subsi will be that the listed entity will be able to raise funds for own expansion, i.e YTL Hosp REIT listed in Bursa. If the subsi is listed in a foreign stock exchange, it will bring in foreign money and raise its status as an international company, i.e. YTL REIT listed in SGX that can raise funds in Singapore dollars to acquire under-valued assets in Singapore or regional with SGD.

Posted by dragon328 > 2022-04-27 10:58 | Report Abuse

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.

Posted by dragon328 > 2022-04-27 11:02 | Report Abuse

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.

Posted by dragon328 > 2022-04-27 11:06 | Report Abuse

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.