Posted by observatory > 2022-02-24 23:13 | Report Abuse

@dragon328, thank you again for the explanation. To better understand the case, I've extracted the paragraph below from 2021 AR

"Wessex Water’s regulatory capital value, for example, has grown from GBP1.3 billion (approximately RM7.0 billion) when it was acquired by YTL Power in 2002 to GBP3.36 billion (approximately RM19.31 billion) as at 30 June 2021, whilst ElectraNet’s regulatory asset base (RAB) has grown from AUD0.75 billion (approximately RM2.2 billion) since acquisition in 2000 to AUD2.96 billion (approximately RM9.25 billion) as at 30 June 2021."

Next I try to relate the RAB to potential market value (in a very rough way).

In ElectraNet's case, RAB is RM9.25billion. With 33.5% stake, YTL Power's share should be 9.25 * 0.335 = RM3.1b. It was sold at RM3.06b. However the sales proceed also include undisclosed amount of loan notes. So the equity amount should be less than RM3.06b. So in this case probably 1 dollar of RAB is sold for less than 1 dollar?

But if I were to take Tenaga example, RAB is about RM55b, and market cap is RM52b. It's about RM1 RAB for RM1 market value.

Applying 1 to 1 ratio, the 100% owned Wessex Water with about RM20b RAB may be worth RM20b?

Adding up all the RABs calculated this way, and subtract the parent co's net debt of RM7.4b, we get the theoretical "maximum" value?

Posted by observatory > 2022-02-24 23:26 | Report Abuse

Another question. How do you calculate the free cash flow?

If I were to look at the CF statement at group level, Operating CF in FY20 and FY21 are RM1.1b and RM1.3. But PPE purchase were even larger at RM1.3b and RM1.7b in those two years. The resulting FCF will be negative.

Should the CF be measured from the parent company level instead? This is the level where dividends are received from the separate subsidiaries or associates. However operating CF at company level are only RM154m and RM126m in FY20 and FY21.

Posted by darren2021 > 2022-03-03 12:01 | Report Abuse

i saw that the utilities sector might going to rebound soon...but what's the theme for them to rebound???

Posted by Nkk1370 > 2022-03-03 13:37 | Report Abuse

Bought 0.60

Posted by JacLow > 2022-03-03 18:50 | Report Abuse

Hahahaha.. Nice back to 60c.. Rebound?.. Hahahaha

Posted by lawpc128 > 2022-03-04 07:52 | Report Abuse

It says yeoh family was dealing in company shares, anybody knows they are buying or selling?

Posted by somo1 > 2022-03-04 09:29 | Report Abuse

Ytlpowr gave senior management a total of 60 million shares options. What's the justification for that lofty rewards? And does anyone know details of the ESOS, like the exercise price and time period for the option?

Posted by dragon328 > 2022-03-04 10:43 | Report Abuse

@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.

Posted by dragon328 > 2022-03-04 11:55 | Report Abuse

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.

Posted by dragon328 > 2022-03-04 12:36 | Report Abuse

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.

Posted by dragon328 > 2022-03-04 13:36 | Report Abuse

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.

Posted by cwc1981 > 2022-03-04 14:31 | Report Abuse

thanks. accumulating

Posted by observatory > 2022-03-04 15:48 | Report Abuse

@dragon328, thank you for the valuable inputs, which will be very useful to me when I study as I know what I should pay attention to. Will look into the details.

I wonder if the recent weak sentiment has to do with underperformance at PowerSeraya. I recall reading a report mentioning that it suffers from high natural gas price input. However the annual report mentions it has done hedging (but not sure to what extent).

Besides I read that Singapore electricity market runs a 3-monthly auction. Supposedly any higher fuel cost can be passed through albeit with delay? This should become easier after the market consolidation where YTL Power bought Tuas Spring and became market number 2.

Posted by dragon328 > 2022-03-04 17:19 | Report Abuse

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.

Posted by tonywong8 > 2022-03-05 16:13 | Report Abuse

Dragon 328, thank for your valuable informations.
Quarter 31/12/21 30/9/21 30/6/21
Sale of electricity(RM K) 3763646 1972416 1536335
Tarrif ex GST( S. cents) 24.11 23.38 22.55
Cost go to power plant 17.88 17.65 16.32
In term of RM/KWH( x3.1) 55.43 54.72 50.59
Electricity sold(GWH) 6.79 3.60 3.04
There were sudden jumped in revenue for the last two quarters. It was more than double. The next quarter result may increase further to RM4 billions just for electricity sales. Why revenue jump so fast and profit not going up.

Posted by dragon328 > 2022-03-06 16:49 | Report Abuse

@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.

Posted by observatory > 2022-03-07 01:00 | Report Abuse

After looking up some reports, I gained a better understanding on the YTL Power businesses. I share them as below. This is partly to reinforce my understanding, and partly to invite feedbacks from @dragon328 and other shareholders who have studied this company.

(A) Wessex Water in UK
1. 100% equity stake. Acquired in 2002

2. Key profit contributor

3. From 2021 Annual Report, "Over the current 5-year regulatory period, Wessex Water will undertake capital investments of RM7.5 billion (GBP1.3 billion), resulting in a total RAB value in excess of RM22.4 billion (GBP3.9 billion) when the regulatory period ends in March 2025."

4. With RM7.5b capex over a 5 year period, an average capex of RM1.5b should be factored in when computing FCF.

5. However, in Feb 2021 Fitch rated Wessex Water holding company at BBB-, and the subsidiary service company at BBB. In other words, just one notch above speculative grade.

6. It seems that the key reason is regulator Ofwat has set tougher cost and performance targets.

7. In the Hong Leong report dated 28-Aug-2014, the allowed weighted average cost of capital in FY10-15 was 5.5%. Based on Fitch report, it was 3.7% in FY15-20. Current period FY20-25 allowed WACC is only 1.96%. (in real term)

8. The discount rate seems very low to me. For comparison, recently Malaysia Energy Commission maintained the WACC at 7.3% (nominal term) for Tenaga in RP3 that runs until 2024. The real WACC for Tenaga will still stay at 4.3% even if inflation hits 3%.

9. The trend of decline could be seen in the Water & Sewerage segmental PBT. During FY2015-18, segment PBT was above RM900m a year. In FYT2018 it almost hit RM1b. This was followed by continuous decline which was RM739m (FY2019), RM610m (FY2020), and RM494m (FY2021). 1HFY21 is RM275m. In other words, PBT from this key contributor has declined to RM500-600m a year.

10. In my view, with the trend of reducing profit driven by the regulator, the valuation of Wessex Water may actually declines despite increased RAB.

https://www.fitchratings.com/research/corporate-finance/fitch-affirms-wessex-water-at-bbb-outlook-stable-25-02-2021

Posted by observatory > 2022-03-07 01:03 | Report Abuse

(B) PowerSeraya in Singapore
1. 100% equity stake. Acquired in 2009

2. In 2020 acquired Tuaspring Power which has a 396MW CCGT power plant for about RM1b.

3. With the consolidation consolidation, PowerSeraya now controls about 25% of market.

4. However the effects of over-supply and stiff competitions in the past have not been fully reversed. The Multi Utilities Business (Merchant) segmental PBT were over RM700m in FY2012-13, ~RM500m in FY2014, ~RM300m in FY2015, ~RM100m in FY2016-18, about ~RM200m losses in FY19-20 before registering RM275m PBT in FY2021.

5. Segment PBT in 1HFY21 shrank again to only RM90m (compare to 1HFY20 RM182m). Hong Leong report on 25 Feb said it was due to "surge in fuel cost" at Seraya. It seems that despite hedging, the business could not 100% shield itself from rising natural gas price, and cannot fully pass on the cost increase to consumers.

6. Apparently PowerSeraya is also involved in oil trading and tank leasing. Not sure about the scale. Could these non-electricity business contribute to the fluctuation in profits?



I stop for now. To continue with other businesses in another day. Meanwhile I look forward to thoughts on above businesses.

Posted by dragon328 > 2022-03-07 17:27 | Report Abuse

@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.

Posted by dragon328 > 2022-03-07 17:50 | Report Abuse

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.

Posted by observatory > 2022-03-07 21:54 | Report Abuse

@dragon328, thank you for the great sharing! I'll like to focus on Wessex first.

I agree that a matured and stable business like Wessex Water will likely be funded through internal funds and borrowings. It shouldn't tap the cash from its parent anymore. But I wonder how much cash can Wessex contribute back to parent in the next few years.

This is important since YTL Power is a dividend play. Assume market expectation for FY22 DPS is 4.5sen (Maybank 5 sen, Affin 5 sen, CIMB 3.4sen, HL 3sen, RHB 5.2sen), it will need to distribute 8,102m shares * 4.5sen DPS = RM365m of cash. Such cash generation capability should come from normal operation and not one off asset sales like Electranet.

Given Wessex Water is the largest profit contributor and a matured business, I would expect it to shoulder most of the responsibility.

I did some back of the envelope calculation. However t I fail to come up with the necessary FCF from Wessex. Not sure if I've missed out something. Anyway this is what I did.

The Annual Report does not provide cash flow info at Wessex level. So I deduce from whatever info available on the segmental information (page 232, note 38 of 2021 AR).

(1) First I note the Water and Sewerage's equity = segment assets - segment liabilities = RM23,449m - RM21,460m = RM1,989m. Gross debt to equity = RM15,820m/ RM1,989 = 8X, which probably implies limited scope for further borrowings.

(2) As mentioned earlier, the PBT has declined in recent years: RM739m (FY2019), RM610m (FY2020), RM494m (FY2021), RM550m (annualized from 1HFY22 PFT RM275m). I therefore assume a sustainable annual PBT at RM600m in the next few years.

(3) FY2021 depreciation reached RM703m. Assuming FY2022 depreciation is even higher at RM750m due to high capex.

(4) FY2021 capex was RM1,490m, in line with 5 year spending of RM7.5b within current regulatory period. So assume annual capex RM1,500m.

(5) Assuming others items are insignificant or stable, operating cash flow = PBT + depreciation - tax (Wessex 2021 annual performance report shows effective tax rate is 13%) = RM600m + RM750m - RM600m*0.13 = RM1,272m

(6) The resulting operating cash flow is insufficient to cover annual capex of RM1,500m

Have I missed anything in my calculation or assumptions? If no, then will have to expect little cash from Wessex in the next few years to help pay dividends to shareholders.

Posted by dragon328 > 2022-03-08 15:42 | Report Abuse

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

Posted by cwc1981 > 2022-03-08 16:08 | Report Abuse

@dragon328. is that equal to 6 cents dividend per share?

Posted by JacLow > 2022-03-08 20:05 | Report Abuse

So low, waiting someone say privatise

Posted by observatory > 2022-03-09 00:47 | Report Abuse

@dragon328,

I overlooked the fact that as net asset grows, debt could also grow while still keeping debt to equity ratio constant.

Anyway I found that Wessex Water Services Limited's (WWSL), the operating company, publishes its financial statements in its annual reports as required by the regulator. This will be a good source of info to work out valuations at subsidiaries level.

Based on the financial statements, the actual dividends paid from 2017 to 2021 were Pound Sterling 90.5m, 92.0m, 90.0m, 88.0m, 59.5m. The subsequent 6 months interim report shows dividends of Pound Sterling 34m. It seems that the current dividend level is set at around 60m per annum, in line with lower profit under the new regulatory period.

Assuming this is the level for the next few years, we can expect 60 million * 5.5 = RM330 million annual dividend contribution per year.

Posted by observatory > 2022-03-09 00:53 | Report Abuse

Unfortunately I can't find such financial disclosure for PowerSeraya. Maybe its not asked by Singapore regulator.

I try applying the same method to work out the FCF. This is what I found from the Annual Reports for the multi utilities business (merchant)

(1) Depreciation and amortization for FY18-21 are RM319m, RM233m, RM251m, RM254m.
(2) Capex for FY18-21 are RM103m, RM104m, RM93m, RM176m.
(3) As previously noted and as you pointed out, PBT was volatile but seemed to be on a recovery track. For FY18-21, they were RM72m, - RM242m, - 172m, RM275m. But there were the impairment charges of RM72m in FY19, RM2m in FY20, and reversal RM71m in FY21. Excluding the impairment effects, core PBT of FY18-21 should be +RM72m, -RM170m, -RM170m, RM204m. (Quarterly report shows 1HFY22 PBT was RM90m)

For FY22, I assume depreciation is RM260m. Annual maintenance capex RM100m. Tax rate 15%. Assume other items are constant or insignificant, and no major capex.

In the scenario where FY22 core PBT is RM180m (double of 1HFY22), the potential FCF = RM180m + RM260m - RM100m - RM180m*0.15 = RM313m.

In the more pessimistic scenario where FY22 core PBT is zero, the potential FCF = 0 + RM260m - RM100m = RM160m.

It seems that PowerSeraya use borrowings and new equity shares to fund TuasSpring acqusition (which as I understand has not been completed). As reported in Maybank Mar 2020 report, the acquisition would be "funded by SGD230m (RM696.9m) in cash (to be financed through borrowings) and SGD101.45m (RM307.4m) book value of 7.54% Equity Interest in YTL Utilities (the immediate holding co of PowerSeraya) "

Without other major capex, and given that depreciation is higher than capex, PowerSeraya should also be able to contribute cash to the parent even if it barely breakeven.

Is this a fair assessment?

Posted by dragon328 > 2022-03-09 11:53 | Report Abuse

@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.

Posted by dragon328 > 2022-03-09 14:07 | Report Abuse

@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.

Posted by cktay > 2022-03-09 16:04 | Report Abuse

I can?t find much latest info, but AmInvest?s analyst report (yesterday, 8th Mar, 2022) has this to say ??
As for rising fuel costs, we believe that the ICPT (Incentive Cost Pass Through) framework will be honoured. As such, the surge in coal and gas costs would be reflected in higher tariff surcharges to the commercial and industrial sectors in 2H2022.
TNB?s coal and gas supplies have not been affected by the war in Ukraine yet. Less than 10% of TNB?s coal supplies are from Ukraine. TNB sources its coal mainly from Indonesia and Australia.
We maintain our OVERWEIGHT stance on the power sector with a BUY on TNB with a fair value of RM12.00/share. We have HOLDs on Malakoff with a fair value of RM0.79/share and YTL Power with a fair value of RM0.67/share.
(Kenanga?s TP was 87s for YTLPower on Feb 25th) YTLPower?s price today is 57s and there is a big seller!

Posted by cktay > 2022-03-09 16:05 | Report Abuse

The present day headlines of skyrocketing fuel prices is certainly causing a lot of concern for investors especially when there is very little info explaining the mechanism how fuel prices (price of oil, gas, coal and renewables) affects Utility companies and how it will be passed on to consumers / or subsidized by the Govt.
Over to S?pore and Indonesia, how does skyrocketing fuel price affect Seraya & Tuaspring (S?pore) and Tg Jati (Indonesia) power plants. Where do they get their fuel from? How much hedging has been done?
Francis Yeoh was one shrewd guy. During the Asian crisis YTL went unscathed because he anticipated and took no USD loans. Hope he is clever enough to maneuver through this present Ukraine crisis which affect many sectors including the bread you eat!

Posted by The_JQuestion > 2022-03-09 21:31 | Report Abuse

wow buyback 1000 shares is that a joke ... 600 rm wowwww very supportive

Posted by freddiehero > 2022-03-09 21:51 | Report Abuse

Huhu.. how come dude..macam macam ade..

Posted by observatory > 2022-03-09 22:59 | Report Abuse

@dragon328, since you mentioned, let's touch on businesses outside UK and Singapore.

(C) Power generation (Contracted)
First, according to the page 19 of 2021 Annual Report, the already expired Paka PPA and yet to be commissioned Jordan's Attarat are parked under segment Power Generation (Contracted).

Given currently there is no operation, the segment recorded zero revenue and pretax loss of RM11m in 1HFY22.

What I don't understand is the segmental assets. As shown in page 232-233 of Annual Report (Note 38), segment assets were RM323m in FY2020, but reduced to RM188m in FY2021. Annual depreciation was only RM20m and there was no impairment. I'm puzzled by the over RM100m reduction in asset value.

Obviously the RM188m segment asset does not account for the Attarat power plant which YTL Power has 45% equity stake. According to Wikipedia, the project costs USD2.1billion and shareholders will invest USD528 million. The construction is supposed to be near completion
https://en.wikipedia.org/wiki/Attarat_Power_Plant

Attarat balance sheet information can be found in page 172, note 15a(i). I wonder why it's not reflected in the segmental information.

Posted by observatory > 2022-03-09 23:03 | Report Abuse

(D) Investment Holding Activities
As explained in Page 27 of Annual Report, this segment captures the interest in ElectraNet, Jawa Power, and the Brabazon Development in UK.

In page 174, Note 15b, it is stated that the group has 20% interest in PT Jawa Power. But footnote explains the subgroup's direct interest is 35%. I don't understand what it means. I just assume it owns 35% interest.

I'm positively surprised that dividends received from Jawa Power were RM377m and RM350m in FY21 and FY20 respectively. Looking further back, dividends were RM386m, RM346m, RM354m, RM370m for FY19-16.

It seems that Jawa Power is a very profitable venture. FY2021 ROE = net profit 884m/ year end equity 4,411m = 20%. This seems too high for a utility company.

As explained in Jawa Power website, it started commercial operation in 2000 with a 30 year PPA. So anyway the good time will end by 2030. It's important to develop new businesses to replace this cash cow.

Besides nowadays coal power plants also come with ESG discount. I read that YTL tries to overcome by exploring the possibility of a solar farm in newly acquired Kulai land.

Posted by observatory > 2022-03-09 23:05 | Report Abuse

On Barbazon project, which is a mixed-use residential and commercial property project in Bristol, UK, I wonder why get into property development. If YTL wants to pursue property development in UK, shouldn't the ultimate parent company YTL Corporation Berhad take it up instead?

It's the same with the 2018 non-core acquisition of a hotel Bel Air Den Haag Baheer B.V. in Netherland. It was probably acquired by YTL Power because YTL REIT did not have sufficient financial capability to close the deal then. This transaction was viewed negatively by analysts.

In my opinion such opportunistic moves into non-core businesses does not sit well with investors who want to focus on infrastructure business.

Posted by cktay > 2022-03-10 10:21 | Report Abuse

Tenaga yesterday put some clarity for its regulated business to dispel the knee jerk reaction because oil and gas price shot through the roof .....
According to TNB, regulated businesses continued to make up over 70% of the group's earnings.
"Regulated entities? earnings are guaranteed based on approved electricity demand growth as stipulated by the IBR [incentive-based regulation framework] guidelines.
"Risks such as fuel price and forex volatility has been taken up through the Imbalance Cost Pass-Through (ICPT) mechanism which is being reviewed every six months.
"Our regulated business continues to provide stable returns supported by the IBR framework. We secured a fair WACC [weighted average cost of capital] and sufficient expenditure allowance for the next three years," it added.
Under Regulatory Period 3 which spans 2022 to 2024, the base tariff is 39.95 sen/kWh, while its WACC is 7.3%.
Now what is not clear is the "review every 6 months" How do they account for the interim super spikes in prices. eg USD130 now may drop back to USD70 when the Ukraine crisis is over.
In the last quarter report ...."Multi utilities business (Merchant) The decrease in profit before taxation was mainly due to increase in fuel cost in current quarter" So definitely fuel cost does affect their profits.

Posted by cktay > 2022-03-10 10:24 | Report Abuse

Maybe, Dragon 328 and Observatory might like to comment. Thank you in advance for your interesting comments so far.

Posted by cktay > 2022-03-10 10:27 | Report Abuse

"In the last quarter report ...."Multi utilities business (Merchant) The decrease in profit before taxation was mainly due to increase in fuel cost in current quarter" So definitely fuel cost does affect their profits" This one refers to YTL Power remarks

Posted by observatory > 2022-03-10 11:01 | Report Abuse

@cktay, dragon328 has explained that the unavoidable imperfection in hedging means PowerSeraya is exposed to fuel cost fluctuation. You may read his comments again.

To get a better idea on Tenaga's ICPT mechanism, and how the KWIE fund buffers fuel cost fluctuation, refer to article below.
https://www.energywatch.com.my/blog/2020/07/20/whats-next-for-malaysias-electricity-bill/

The question not addressed in that article but has been raised before is what happen when KWIE fund runs out.

Posted by dragon328 > 2022-03-10 17:39 | Report Abuse

@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.

Posted by dragon328 > 2022-03-10 17:42 | Report Abuse

@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.

Posted by dragon328 > 2022-03-10 17:45 | Report Abuse

@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.

Posted by dragon328 > 2022-03-10 17:47 | Report Abuse

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.

Posted by observatory > 2022-03-11 00:59 | Report Abuse

@dragon328, thank you for you reply. Now the last segment, the 60% interest in YTL Communications which operates YES.

This challenge was much harder than Francis Yeoh had imagined. In 2011 he asked shareholders to be patient and thought it would turn around in 2 years time. But the business has been in loss every year except 2019 where it turned a tiny profit. But the onset of pandemic knocked it off course again, recording RM191m and RM265m losses in FY21 and FY20.

https://www.theedgemarkets.com/article/yeoh-expects-ytl-comms-turn-around

I notice YES and TM are the only two mobile network operators backing DNB's Single Wholesales Network (SWN), probably seeing it as the best chance to level the playing field. But the fate of SWN is still uncertain. The transition to 5G will also take at least 3-4 more years.

Analyst attribute YTL Power weaknesses partly to "contribution to a corporate social responsibility programme". I suppose they refer to the free access given to students across the country. While it may have generated a lot of goodwill and even future customers, I wonder what is the cost. Should we expect RM100m-200m loss per annum for the next few years?

BTW what's your view on its 80% interest in Tanjung Jati, which was based on a lucrative PPA signed by its partner back in 1998. It was supposed to achieve financial closure a few years ago but still pending.

Posted by dragon328 > 2022-03-11 11:31 | Report Abuse

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.

Posted by cktay > 2022-03-11 15:02 | Report Abuse

Regarding Tg Jati in Indonesia, I think the Indon govt intends to develop their coal industry given their huge coal reserves (6th in the world after US, Russia, Australia, China and India) Probably a lot more yet to be discovered in Kalimantan
Recall when our Bakun hydro electric dam was first built in Sarawak, they were looking for where to sell the power to. Then PressMetal come into the picture and did long-term contracts to buy the electricity for its aluminum plant. See how well PMetal is doing today.
Regards solar, I think the 500 MW in Kulai Young estate 60km away from S?pore is just only the beginning of YTL Power going into renewables. Plenty of prospects there I would think.
Regarding YES, I too didn?t like them venturing into telco right at the beginning. When wireless was first launched in M?sia, there were about a dozen companies, all either died or got incorporated into the big three. Packet 1 also bled to death until recently taken over by TM. Vincent Tan probably regretted selling off DiGi even tho he made a tidy sum. He got back in the telco scene with U Mobile which is doing not bad. For YTL Comm Yes (pure 4G + 5G network), it has written off so much losses that hopefully I think the only direction should be up. If not the accumulated losses should be good for future profits, right?

Posted by cktay > 2022-03-11 20:17 | Report Abuse

Indonesia is the world’s biggest coal exporter by tonnage, followed closely by Australia, with Russia a distant third, according to the International Energy Agency.
Indonesia requires coal producers to supply at least 25% of output to meet local needs and sets a ceiling price for coal sold to local power plants at $70 per ton, a policy known as the domestic market obligation rule.
In January, Indonesia temporary banned coal exports because PLN, the state-owned electric company which generates the majority of the country's power and relies heavily on fossil fuels, said its stock was running critically low
In order to control the retail price of electricity, the government forces coal miners and traders to supply domestic power plants at a fixed price. Currently that is capped at $70/ton. [Todays price is $365 per ton]
And this works, insofar as the goal is to keep electricity bills low even as energy markets the world over are being turned on their heads. It’s an arrangement that works for the government, and for Indonesian consumers.
https://www.bloombergquint.com/onweb/indonesia-s-coal-miners-are-bracing-for-new-export-curbs
https://thediplomat.com/2022/01/the-message-behind-indonesias-coal-export-ban/
Wow! Indonesias power generation is even more regulated than I thought.

Posted by observatory > 2022-03-12 01:24 | Report Abuse

@cktay, that's a useful info. But not entirely unexpected. As the article mentions, Indonesia imposed a similar coal export curb in January. It also imposed Domestic Market Obligation on palm oil recently, initially 20% and then raised to 30% a few days ago.

I wonder if heavy handed tactics have ever been used on IPPs like Jawa Power? As mentioned earlier, the profitability is very high for utilities business. It could be the legacy of difficulties in attracting foreign investment during the 90s (Operation started in 2000, two years after the 1998 Asian Financial Crisis that hit Indonesia hard and the downfall of Suharto). I wonder if any later governments ever "regretted" giving away a generous deal and tried clawing back some benefits.

I have the same question over Attarat project in Jordan. What are the agreed returns? As good as Jawa Power?

Attarat's shareholding structure, where the Chinese and YTL Power each owns 45%, with the remaining 10% shared by Estonia and Jordanian interests, means it's almost a fully foreign owned project. What is the track record of foreign investor protection in Jordan?

Posted by observatory > 2022-03-12 01:34 | Report Abuse

There are many obstacles to YTL Power's ambition to sell green electricity to Singapore potentially from solar farm installed on the newly land in Kulai.

The very first obstacle is, as quoted in the article below, "On 22 October 2021, the Ministry of Energy and Natural Resources (‘KETSA’) announced that the Malaysian Government had decided to allow only electricity generated from non-renewable energy resources to be exported to Singapore1 as part of the cross-border electricity sales framework in Malaysia. This is a departure from the previous requirement set out in the Guide for Cross-Border Electricity Power Sales"

Note also this restriction only applies to export to Singapore, but not Thailand! I wonder what is the motive or objective of our Ministry.

https://www.lexology.com/library/detail.aspx?g=03891f87-4223-4d80-bdea-be18965a9708

The renewable export ban to Singapore will not be the only challenge. Recall even for domestic market, the Energy Commission has restricted the bid size for its LSS (Large Scale Solar) tenders. In the LSS4 concluded in 2021, the maximum capacity allowed by each bidder was only 50MW, far smaller than YTL Power's ambition. Even Tenaga could only get 50MW. Assuming future LSS tenders also adopt such fragmented small scale supplies, YTL Power will not be able to leverage its large piece of land, even for the domestic market!

https://www.thestar.com.my/business/business-news/2021/03/16/10-listed-firms-win-lss4-projects

And the combination of Johor land and solar farm lead me to another curious event. On the eve of LSS4 tender award last year, the Sultan of Johor abruptly cancelled a planned 450MW solar park project in Pengerang. He blamed on the federal government's "silence" on the project.

https://www.theedgemarkets.com/article/johor-sultan-cancels-rm14b-solar-projects-groundbreaking-ceremony-blaming-putrajayas-silence

How will these factors play out? I'm sure the management is well aware of these obstacles before they went ahead with the land acquisition. Have they worked out some feasible plan together with the Johor state?

Hope the newly acquired land won't remain an oil palm plantation many years from now!

Posted by dragon328 > 2022-03-13 11:17 | Report Abuse

@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.