Posted by dragon328 > 2022-03-13 11:19 | Report Abuse

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.

Posted by dragon328 > 2022-03-13 11:29 | Report Abuse

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.

Posted by dragon328 > 2022-03-13 11:32 | Report Abuse

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.

Posted by Hafid > 2022-03-13 12:00 | Report Abuse

Ofwat has ‘serious concerns’ over Thames Water, Yorkshire Water and others

Posted by observatory > 2022-03-13 15:04 | Report Abuse

@dragon328, I checked The Star article after reading your message. Just as you've pointed out earlier, Datuk Yeoh voiced the same opinion that the market overlooked the company's regulated asset bases which were growing in value. He lamented that the market only valued YTL Power on dividend basis.

But it's also a fact that shareholders everywhere will discount assets, including cash, if they don't see prospect of above cost of capital growth, or greater cash return through dividends or buybacks. Can't blame investors for being cynical. While controlling shareholders can decide what to do with the assets, minority shareholders only see them on paper.

If Datuak Yeok wants to change the market, the easiest way is to a return a portion of the cash from EletraNet monetization back to shareholders. The market will immediately pay attention and ascribe values to potential monetization/ growth of other assets. Since the Board doesn't share the direct benefit with shareholders (beyond promise of better future return through better investment), I can sympathize with the market skepticism.

But to be fair, even if YTL Power is valued as a dividend stock, the current share price is more than adequately supported if the Board can just maintain the dividend level. As we discussed, current dividend level can be sustained, if they choose to. Looking back to the past, the share price would find support wherever dividend yield reaches 7% (the chart is available in Maybank reports).

The decline in share price over the years were due to dividend cut, from 10 to 5 and now 4.5sen. While pursuing other good opportunities, the Board should also raise its dividend level if they seriously want to close the discount gap.

Posted by observatory > 2022-03-13 15:13 | Report Abuse

There might be another reason for the share price discount. Knowing that the assets are deeply discounted, and with the multi-year decline in share price, there is a real possibility of privatization in the future should the trend continue.

There is ample of precedence with YTL Corp. It already has three privatizations under its belt over the last decade. Based on the past records, any privatization is likely to be non-cash but share exchange with YTL Corp. And don't expect a good premium.

This is the history:

1. In 2012 YTL Cement was delisted through a share swap to YTL Corp. No cash.
Note when YTL Cement was privatized, it was in a net cash position, below book value and single digit PE, while parent YTL Corp was in net debt. Beside YTL Cement was taken private just before the construction boom began!
https://www.asiasentinel.com/p/ytl-why-so-stingy-3?s=r

2. In 2016 YTL e-Solutions was delisted through yet another share swap to YTL Corp. Again no cash!
Although smaller in size, YTL e-Solutions had similar characteristics as YTL Power with its low risk stable return. It owned spectrum which it leased to YES. According to The Edge report below, before privatization YTL e-Solutions was paying above 7% dividend yield and owned a high cash pile.
https://www.theedgemarkets.com/article/zero-premium-privatise-ytl-e-solutions-fair

3. In 2019 YTL Corp again delisted YTL Land & Development. Share swap again!
Note that 2019 was the low point in property market. If not for the subsequent pandemic, it is conceivable that the market would have recovered, and YTL Corp might have scored another good privatization timing.
https://www.theedgemarkets.com/article/ytl-land-set-delist-ytl-corp-has-9045-company

This is also the reason that Malayan Cement minority shareholders are concerned after YTL Cement acquired Lafarge Malaysia (later renamed as Malayan Cement); and further extended its control by injecting YTL Cement assets. To be fair Francis Yeoh has given repeated assurances that they will keep Malayan Cement public. But it's unclear how solid his commitment is.

Percentage as well as market cap wise, the potential "gain" from privatizing Malayan Cement is less as YTL Cement already owns 79% of its shares. Besides this has not taken into account of its huge block of ICPS.

But temptation for privatizing YTL Power will be much larger. YTL Corp and Yeoh's family only own 65% in total. There are another 35% under valued shares to be acquired if they find a way.

The privatization factor is irrelevant if we only want to ride on the turnaround theme in the short term. But should consider the probability if we intend to sit through until the share price discount gap is closed.

Posted by observatory > 2022-03-13 15:47 | Report Abuse

I checked my source of ElectraNet's RAB again. As stated in 2021 Annual Report page 10,

"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."

YTL Power sold its 33.5% equity stake for for AU$1.026bil (RM3.15bil). That valued the 100% equity value of ElectraNet RAB at AUD1.026b/0.335 = AUD3.06b, about 1X to the 2021 RAB at AUD2.96b.

But the transaction amount includes both equity and loan notes. So rightfully, the amount fetched for the equity portion should be even lower than AUD1.026b. Not sure what details I may have missed out.

Posted by cktay > 2022-03-14 10:25 | Report Abuse

There are so many ways to value a company, Discounted Cash Flow, Times revenue, Earnings multiplier, Book value, Projected PE, etc. I neither have a CFA nor any accounting degree, so mine is rather simplistic. Please correct me if I am wrong.

MIDF Research said the 33.5 per cent stake was bought by YTL Power in December 2000 for AU$58.5 million (RM122.9 million) and as of end of financial year 2021 (FY21), entailed a carrying value of AU$258.2 million (RM769.3 million)
So you see, the stake was bought at RM122m. Valued in accounts at RM769m at end of FY21. Now sold for RM3b for a whopping RM2.2b extraordinary gain.
Selling at RM3b means a whopping 390% over its carrying value at end FY21 and 2439% over its initial investment.
Why had the market undervalued this YTLPower’s component assets? What about Wessex and all the other power plants?
To me the gain of RM2.21 billion (transaction to be completed before the end of the Q2 in CASH). RM2.11 b divided by 8.15b shares = 25s a share. So if current share price is 60s. You will actually be paying 35s a share for the rest of YTL Power’s business assets.
So going by sum-of-parts, what should the fair share price of YTL Power?
Why had EPF and all the other analysts been undervaluing YTLPower? So many questions, so little answers!

Posted by observatory > 2022-03-14 12:52 | Report Abuse

@cktay, given the different businesses have different characteristics, I agree sum of parts approach is right way.

Given PPA assets have finite lifetimes and predictable cash flows, they can be valued using DCF. Other assets may be valued differently. Then sum up the parts and apply a discount. But the discount will be very subjective.

I suspect if done properly, the sum before discount will be very larger than current market price.

But the discount may not be narrowed just because it exists. There are companies where market caps are even below net cash. Theoretically if someone could borrow and acquire the entire company at that price, he will still end up with extra cash after settling his borrowings, and a debt free company!

To close the discount gap we need catalysts like increased dividends. Alternatively it could be a special dividend from ElectraNet sales proceed (management has ruled out) as it gives the idea that shareholders may share the cash from future asset monetization.

Absent of that, in my view it's safer to value the entire group based on dividend yield because dividends are tangible.

Posted by observatory > 2022-03-14 12:54 | Report Abuse

@JJPTR, if there is a privatization and if it's based on share exchange like past practices, the ratio will be determined based on prevailing prices of the two companies.

Lets say they set offer price for YTLP at 72 sen, and establish that YTL recent average price is 48 sen, then it can be 2 shares of YTLP for 3 share of YTL. Something like that. The NTA consideration is not important.

But to be clear I raised the prospect of privatization as a long term possibility, only if share price continues to be depressed, and also considering YTL past records.

Posted by Tigertiger > 2022-03-14 13:42 | Report Abuse

https://www.google.com/amp/s/headtopics.com/my/ytl-power-says-its-shares-are-undervalued-24711429

Posted by cktay > 2022-03-15 11:56 | Report Abuse

Woww! Thanks Tigertiger.
Most relevant info/explanation from the horse's mouth.
Time for analysts to do proper research work instead of copy and paste during every rushed reporting period

Posted by observatory > 2022-03-15 16:37 | Report Abuse

Today Public Investment Bank publishes a report which seems to favor Dual 5G Network promoted by Maxis, Digi, Celcom and U Mobile, over the Single Wholesale Network (SWN) by DNB and supported by TM and YES.

https://klse.i3investor.com/web/blog/detail/PublicInvest/2022-03-15-story-h1600247359-Telecommunications_Single_or_Dual_5G_Network_For_Malaysia

It is pending cabinet decision. This is a mess. Why did the government push for SWN and sign up with Ericson without thinking through the resistance from vested interests which are the incumbent telcos? Without all telco coming on board, DNB will fail. How to pay Ericson for the work already done?

The logic of building two 5G networks purportedly to introduce competitions is like setting up another power transmission and distribution network to compete with Tenaga. It just doesn't make sense.

As for YTL Power, a single network will relieve it from massive capex of building its own 5G network, and thereby could compete with the big boys on equal basis.

Hope the cabinet comes to its senses rather than cowing to the vested interests.

Posted by cwc1981 > 2022-03-16 16:10 | Report Abuse

Confirmed SWN

Posted by cwc1981 > 2022-03-16 16:24 | Report Abuse

Good for YTL PWR?

Posted by observatory > 2022-03-16 18:15 | Report Abuse

Yes, good news to YTL Power. If SWN fails, it could be very expensive for YES to build its own 5G network given it has a smaller subscriber base to spread the fixed cost. With SWN, the infra cost becomes ongoing opex. Although the annual fee paid to DNB will ramp up after an initial discounted period, YES will have time to compete and expand its user base. As all telcos will have the same coverage and line quality, it will be easier to win over new subscribers.

But more importantly I believe this is the right choice for the country. The MOF's offer of DNB equity stakes to incumbent mobile network operators is fair and expected. It's not the objective of government to earn money through DNB monopoly in the first place. The government's role is to speed up 5G rollout.

However it's important to install safeguards such that after becoming DNB shareholders, Maxis, Digi, Celcom and the like cannot abuse their positions to slow down the 5G rollout. Otherwise they may be tempted to slow down the rollout so that they have more time to milk their existing 4G assets before they have to spend more on 5G.

https://www.theedgemarkets.com/article/ytl-communications-calls-mobile-network-operators-support-govts-5g-vision

Posted by cwc1981 > 2022-03-16 18:59 | Report Abuse

Yea cost save on infrastructure can be use to lower the subscription fees for end users

Posted by dragon328 > 2022-03-16 19:44 | Report Abuse

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.

Posted by cwc1981 > 2022-03-16 20:36 | Report Abuse

Good

Posted by observatory > 2022-03-17 14:57 | Report Abuse

The government will negotiate with MNOs (mobile network operators) on their equity stake in DNB. I try to do a rough calculation on how much it could cost YES.

According to DNB website, the 5G rollout will cost RM16.5b. Currently it's based on borrowing. Let's assume the negotiation eventually ends with an equity valuation of RM2b. As government retains 30%, MNOs will fork out RM2b * 70% = RM1.4b to take up their combined equity stake.
https://www.digital-nasional.com.my/

The next question is how will the equity be allocated. In today CIMB report it assumes all MNOs take up equal stake. By counting Digi-Axiata as one MNO, each including YES will have 14%. Applying my RM2b valuation assumption, the stake will cost RM2b * 14% = RM280m.

However the allocation maybe based on current market share. 2021 Annual Report mentions YES subscriber base is 2.36m customers. As of 2019, there were 44.6m mobile subscribers nationwide (including non-4G). Assuming the number is still the same, it means YES has a market share of about 2.36/44.6 = 5.3%. If DNB equity is allocated based on the current market share, YES will only need to fork out RM2b * 70% * 5.3% = RM74m.
https://www.malaysianwireless.com/2020/05/mcmc-fixed-broadband-mobile-subscribers-malaysia/

So the necessary one time investment probably ranges from RM74m to RM280m. This amount is to be set aside before arriving at the potential dividend payment.

Posted by dragon328 > 2022-03-17 20:18 | Report Abuse

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.

Posted by observatory > 2022-03-17 22:41 | Report Abuse

@dragon328, I agree DNB's equity stake is cheap if it's only valued at RM2b. Afterall it comes with 5G spectrum, an asset that could worth many billions in competitive auctions. I assume RM2 billion because the government needs to placate and incentivize all the MNOs; and partly compensating them for accelerating their 4G asset depreciation.

The CIMB report also shows the Maxis's estimate of 5G wholesales fees under current DNB commercial offer. Coverage fees for 2022/23/24/25 and thereafter are estimated at RM36m/RM303m/RM403m/RM432m. Additional capacity fee kicks in from 2027 onwards. Note that is on per MNO basis. However it has to be set against Maxis's annual revenue of RM9b.

From YES perspective, it has to quickly grow its current annual revenue from just RM541m in FY2021 to at least several billions. Otherwise the ~RM400m annual 5G coverage fee and even higher capacity fee thereafter will not make sense.

Using your assumption of RM100 per subscriber per month, a target of RM3 billion annual revenue will require RM3b/ (RM100*12) = 2.5 million subscribers, slightly larger than its current subscriber base.

Not an impossible target. But it has to be very aggressive in marketing considering currently there are few 5G use cases. It could be a hard sell to current subscribers, at least for now. However could be more opportunities with commercial and industrial clients. I'm sure the big boys are eyeing this segment too.

Posted by dragon328 > 2022-03-18 15:58 | Report Abuse

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.

Posted by dragon328 > 2022-03-18 16:03 | Report Abuse

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

Posted by dragon328 > 2022-03-18 16:06 | Report Abuse

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

Posted by cktay > 2022-03-18 17:01 | Report Abuse

Big volume buy at close. Is there something happening?

Posted by cwc1981 > 2022-03-18 17:20 | Report Abuse

Lots of positive development lately. Good

Posted by cktay > 2022-03-18 19:25 | Report Abuse

Regarding 5G ....YES postpaid for 5G is RM49 a month. Free Unlimited 5G data until 31st March 2022 (?extend to June). Where places are not yet covered by 5G, YES give 100Gb 4G data.
Going forward for 5G, Maxis, DiGi and UMobile will have no more advantage over YES as the rollout depends entirely on DNB (with towers needed to be built every few hundred meters) unlike 4G where they had better coverage.
So, the fight in the 5G arena is who can sell faster and at a more competitive price.
So far only YES is in the market (TM has still not yet provided its Unify Mobile access). Maxis, DiGi and UMobile will be left hanging in the air if they dilly-dally some more.

Posted by cktay > 2022-03-18 19:27 | Report Abuse

https://www.malaymail.com/news/malaysia/2022/03/16/dnb-extends-free-5g-network-access-to-telcos-until-30-june-encourages-big-f/2047799
DNB extends free 5G network access to telcos until 30 June, encourages big four telcos to sign up

Posted by tonywong8 > 2022-03-20 20:51 | Report Abuse

星期5的大买Rm0.635，把很多卖家的票都买了。接下来，就看买家能继续，再接再厉的买，前途无量。

Posted by cwc1981 > 2022-03-21 14:24 | Report Abuse

Hope so Tony

Posted by chiliboy > 2022-03-23 11:12 | Report Abuse

This is too cheap and undervalued..just buy and hold u sleep peacefully at night

Posted by tonywong8 > 2022-03-23 15:22 | Report Abuse

在新加坡发电公司要赚大钱，应该没有，已经被控制住了。只能赚那几%。所以，要赚多点钱，只能增加产能和收入。之前只做到十多亿，现在，已经做37亿了，接下来，会多赚一些。上个李度，刚收购从别公司无法生存的电费需求合约，油气价又上升，又没有准备或萛到在期货的数量，所以，成本增加了一些，没有赚钱。这个李度，有备而来，应该会比上个李度好。

Posted by tonywong8 > 2022-03-24 22:17 | Report Abuse

The profit from the sales had increased based on 23/3/2022 exchange rate at 3.1538 was Rm2.384 billions instead of Rm2.253 billions announced earlier

Posted by tonywong8 > 2022-03-24 22:19 | Report Abuse

5月的3Q22李度报告，每股最少可赚Rm0.30。希望公司会拿出多一点股息分给小股东

Posted by lawpc128 > 2022-03-26 07:28 | Report Abuse

EPF buying instead of selling, something brewing.

Posted by dragon328 > 2022-03-28 10:43 | Report Abuse

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

Posted by dragon328 > 2022-03-28 10:46 | Report Abuse

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

Posted by dragon328 > 2022-03-28 10:47 | Report Abuse

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

Posted by hoot9e996 > 2022-03-28 10:47 | Report Abuse

EPF trading strategy is buy high, sell low.
EPF buys at any price as long as the company gives dividend i think
they only sell if they need the money or company got problem.

Posted by dragon328 > 2022-03-28 10:55 | Report Abuse

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

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

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

Posted by dragon328 > 2022-03-28 11:04 | Report Abuse

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

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

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

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

Posted by dragon328 > 2022-03-28 11:10 | Report Abuse

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

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

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

Posted by dragon328 > 2022-03-28 11:12 | Report Abuse

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

Posted by dragon328 > 2022-03-28 11:14 | Report Abuse

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

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

Posted by dragon328 > 2022-03-28 11:20 | Report Abuse

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

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

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

Posted by soon9913 > 2022-03-29 00:16 | Report Abuse

80 cents soon.. EPF everyday buy buy buy..

tonnes of cash on hand

Posted by cktay > 2022-03-29 23:52 | Report Abuse

Looks like S’pore is seriously into renewable energy (more so with sky-rocketing oil/gas prices)
Read this mind-boggling Bloomberg article (March 28)
https://www.thestar.com.my/aseanplus/aseanplus-news/2022/03/28/australia-to-singapore-solar-power-project-clears-another-hurdle
The proposed Sun Cable project to export solar power from Australia’s N. Territories to Singapore.
A$30 billion (US$22.6 billion) project
4,200-kilometre (2,600-mile) high-voltage (undersea) cable
To meet 15% of Singapore’s electricity demand
In contrast, YTLPower bought Kulai Young estate for RM428m
It is only about 60km from S’pore.
I ask how much power loss will occur if you transport electricity over 4,200 km.
Isn’t it more cost efficient to replicate a few Kulai Young 500MWh project (still plenty of land in Johore) which will supply all S’pore’s needs for renewable energy.

Posted by cktay > 2022-03-30 00:11 | Report Abuse

Maybe YTLPower should consider selling off Wessex and shift into the "lucrative" renewable energy sector. Sun Cable proposed A$30b project is really mind-boggling. Have they done the sums to think that it is a viable project? (Even Dr M's long ago idea of transporting power from Bakun in Sarawak to West Malaysia was mind-boggling enough during his time) What's the price of copper now?

Posted by Tigertiger > 2022-03-30 08:39 | Report Abuse

https://www.theedgemarkets.com/article/ytl-power-ride-transition-trend