Posted by Sweetchocalates > 2022-06-10 10:06 | Report Abuse

Operator been dumping their shares for some time. Now they go for the kill.

Posted by Muyutin > 2022-06-13 15:35 | Report Abuse

Very weird Malaysian market...
Share up 1sen take 1year
Down 3sen take half day time

No wonder Ringgit depreciation year by year

Posted by jeffchan1901 > 2022-06-14 11:24 | Report Abuse

if you think the Market is weird, wait till you hear about the political scene. those not voted by the people also can use back door belakang mali to be on gomen too. Malaysia memang boley la.. land of endless possibilities

Posted by jeffchan1901 > 2022-06-14 12:23 | Report Abuse

Finally managed to pick up some at 0.685

Posted by Icon 888 > 2022-06-20 02:27 |

Post removed.Why?

Posted by cwc1981 > 2022-06-21 15:38 | Report Abuse

Australia having energy crisis.......

Posted by geary > 2022-06-27 15:47 | Report Abuse

Added Utility is long term ◉‿◉

Posted by myloh123 > 2022-06-27 16:11 | Report Abuse

Icon888..pls explain what crisis?

Posted by myloh123 > 2022-06-27 22:56 | Report Abuse

Why is dragon328 so quiet now?

Posted by cwc1981 > 2022-06-29 17:24 | Report Abuse

Hidden dragon

Posted by dragon328 > 2022-06-29 19:40 | Report Abuse

Market sentiment is weak due to US markets crashing down and US Fed raising interest rates aggressively, causing fears of a recession. Fortunately the various businesses of YTL Power are recession proof.
The only setback is the rising interest costs due to increasing interest rates in the UK. Based on the debt amount of RM27.8bn as of 31 Mar 2022, a 25 basis point increase in interest rates will result in RM69.5m higher interest expenses for YTLPower.
We need to continue monitoring the impact of this in coming months.

Posted by dragon328 > 2022-06-29 19:43 | Report Abuse

I hope the earnings rebound from PowerSeraya and new earnings contribution from its 5G business will be able to cover the higher interest costs. All in, it is still good to hold on to ride on its earnings recovery phase and explosive earnings rebounds from PowerSeraya and 5G business.

Posted by dragon328 > 2022-06-29 19:45 | Report Abuse

After all, if not utilities and retails stocks, what else to buy and hold in this weak market?
Plantation stocks are having a roller coaster ride following big swings in CPO prices, tech stocks are crashing down (eg. MPI has dropped below RM30.00), glove stocks are seeing no sigh of bottoming, penny stocks attract less trading interests in the weak market.

Posted by dragon328 > 2022-06-29 19:46 | Report Abuse

YTLPower, being a defensive counter, offers dividend yields of over 7.0% p.a. Which stock else could offer higher?

Posted by cwc1981 > 2022-06-30 16:13 | Report Abuse

https://www.straitstimes.com/singapore/consumer/singapore-electricity-tariffs-for-q3-rise-by-81-per-cent-amid-global-oil-and-gas-crunch

Posted by cwc1981 > 2022-06-30 16:14 | Report Abuse

Is YTL Power Seraya benefit?

Posted by dragon328 > 2022-07-01 17:10 | Report Abuse

PowerSeraya should not be benefiting from the electricity tariff hikes, nor suffering any disadvantage, as they typically hedge almost 100% of the fuel cost requirements. The electricity tariff hike is just to pass on the higher fuel costs.

Posted by dick20 > 2022-07-01 21:41 | Report Abuse

Thanks dragon 328 for the clarification and providing information for us to continue to hold on YTL Power

Posted by cwc1981 > 2022-07-02 06:32 | Report Abuse

Yup thanks

Posted by dragon328 > 2022-07-05 10:59 | Report Abuse

Welcome. YTL Power share price is at depressed level now due to general weak market sentiments and foreign funds turning nett sellers of Bursa since early June 2022. But I think there are enough reasons to hold onto YTL Power shares to ride on its earnings rebound in coming months.

Posted by dragon328 > 2022-07-05 11:03 | Report Abuse

While its businesses are mostly recession proof and are not affected by high inflation environment, rising interest rates may be a dampening factor. YTL Power had about RM27.8bn net debt as of 31 Mar 2022, out of this an estimated RM12.8bn debts sit in Wessex Waters level.
The rising interest rates in the UK will increase interest expenses for Wessex Waters but I see this rising cost should be properly compensated by higher water tariffs.

Posted by dragon328 > 2022-07-05 11:08 | Report Abuse

For the balance RM15.0 billion of net debt at YTL Power and its other subsidiaries, a 25 basis point increase in average interest rates will result in RM37.5 million higher interest expenses for a year. Bank Negara has raised interest rates by 0.25% a couple of months ago and looks set to raise another 0.25% in early July. Economists project another 0.25%-0.50% hike in the remaining meetings in Sept or Dec 2022. So we need to brace for a total 0.75%-1.0% hike in interest rates in 2022, resulting in higher interest expenses of RM112m - RM150m for FY2023.

Posted by dragon328 > 2022-07-05 11:10 | Report Abuse

I am hoping for the increased earnings from PowerSeraya and maiden earnings contribution from its 5G business to help offsetting the increased interest expenses.

Posted by cwc1981 > 2022-07-05 13:00 | Report Abuse

Any contribution from Tuaspring Plant?

Posted by cwc1981 > 2022-07-05 13:00 | Report Abuse

Just acquired

Posted by ocbc > 2022-07-05 14:04 | Report Abuse

YTL vs YTL power , which one is better buy ?

Posted by dragon328 > 2022-07-05 20:37 | Report Abuse

The recently acquired Tuaspring plant will increase the efficient power generation capacity of PowerSeraya by 20% and is estimated to contribute gross profit of SGD73m to SGD120m a year from FY2023 onwards as written in my earlier article below:

https://klse.i3investor.com/web/blog/detail/dragon328/2022-06-02-story...

Posted by dragon328 > 2022-07-05 20:41 | Report Abuse

YTL vs YTL Power - which one to buy is up to your own judgement on which one may run up first. Each has own merits:
YTLPower has direct exposure to earnings surge from PowerSeraya, 5G business, potential power export to Singapore and new data centre business;

while YTL Corp has direct exposure to booming cement business, potential reviving of high speed rail project and potential monetisation of unlisted hotels and landbank

Posted by observatory > 2022-07-06 01:29 | Report Abuse

@dragon328, I once read that UK utilities in benefit from inflation as they can pass on the cost. However, how can Wessex Water pass on its higher cost such as higher borrowing cost? At least not until the next regulatory period right?

When interest rate rises, yield seeking investors may also demand higher yield from dividend stocks such as REITs and utilities. And YTL Power is considered a dividend stock. What do you think of this effect?

Posted by dragon328 > 2022-07-06 09:52 | Report Abuse

@observatory, the water tariffs for Wessex Waters are pre-determined by Ofwat for every 5 year period using its own assumptions on inflation (RPI), capex requirements, interest rates etc for the next 5 years, eg. Ofwat used 5-year forward assumption of RPI and interest rates for 2021-2025 when it made the determination in 2020.
While there is an update in RPI every year when Ofwat updates the assumption using the latest data, I am not too sure if Ofwat also adjust its interest rate assumption every year to get an out-turn adjustment for the next year tariff.
If not, there will always be a final adjustment at the end of each 5-year period to account for the difference in actual data vs Ofwat assumptions.

Posted by dragon328 > 2022-07-06 09:58 | Report Abuse

It is true that when interest rates increase, yield seeking investors may demand higher yield from dividend stocks. Everything is relative. For instance, current US Fed rates are at 1.75%. A common stock that gives a 4% dividend yield may still look attractive to investors. But as US Fed raises interest rates by another 75 bp in end July then another 50 bp in subsequent 2 meetings later this year, US Fed rates may touch 3.5% and hence risk-free bond yields may also go up to same level or slightly above. Then the common stock that offers 4% dividend yield will not look so attractive anymore compared to the returns in investing in risk-free bonds.

Posted by dragon328 > 2022-07-06 10:01 | Report Abuse

In the case of YTL Power, I am expecting total dividend of 5.0 sen for FY2022 then possibly 7.0 sen for FY2023, giving a dividend yield of 7% for FY2022 rising to 10% for FY2023. These are way above returns provided by putting money in fixed deposits that pay only about 3.0% p.a. Though Bank Negara is expected to raise OPR by another 25bp + 25bp later this year, at most you will get 3.5% from FD and abour 4.0% from government bonds.

I think there is sufficient buffer in YTLPower's dividend yields that make it attractive relative to fixed income.

Posted by dragon328 > 2022-07-06 10:35 | Report Abuse

To add on the interest rate issue for Wessex, there are abundant supply of financial instruments like interest rate swaps that Wessex can buy to hedge against adverse interest rate movements.
Typically YTLPower management is very conservative and will not take any risk on commodity price movement nor FX nor interest rate movements. I expect Wessex Waters to have entered into some interest rate swaps in 2020 when the water tariffs were being set, so as to protect it from any adverse interest rate movements over 2021-2025.

Posted by dragon328 > 2022-07-06 10:37 | Report Abuse

Similarly, PowerSeraya always hedges almost 100% of its fuel cost requirements and also forex requirements for as far as 2 years. Hence its margin will not be affected directly by huge swings in fuel prices.

Posted by dragon328 > 2022-07-06 10:43 | Report Abuse

Take an earlier example, when YTLPower secured the right to build the first private power station in Malaysia back in 1993 and tried to secure financing for the project, interest rates were going up to as high as 10%-12% in 1994-1997. When no local commercial bank then was willing to lend fixed rate loans, YTLPower approached EPF for a 10-year loan at fixed rate of 10% p.a. That move basically helped YTLPower fence off any interest rate movement risk from the project for 10 years. True enough interest rates went down to single digits after 2000, but the fixed rate loan has helped it to weather through uncertain periods.

Posted by dragon328 > 2022-07-06 11:34 | Report Abuse

By extension, the estimated RM6.0 billion of debts sitting at PowerSeraya level may be covered by interest rate swaps too, I hope. Then the rising interest rate impact on YTLPower will be smaller.

Posted by Value Investor Coo1eo > 2022-07-06 16:26 | Report Abuse

RM0.35 soon...debt laden. Should pare down the debts and improve margins...not pay dividends...

Posted by observatory > 2022-07-07 01:28 | Report Abuse

@dragon328, thanks for the explanation. I agree with you that given that the spread between YTL Power dividend yield with MGS yield is large, the impact due to interest rate hike will be more modest.

Meanwhile, there is a piece of news which may shed some light on how regulated assets in UK fare in inflationary environment. Earlier Li Ka Shing's CK Infrastructure wanted to sell its UK Power Network (UKPN) to a consortium led by KKR and Macquarie. But at last minute CK raised the selling price due to inflation (and also currency movement). The deal collapsed. The action of raising price supports the notion that UK regulated utilities fare well with rising inflation.

(A difference is in UKPN case, its next 5-year regulatory period will start in 2023. So unlike Wessex Water it does not need to wait long for tariff reset)

The FT article explains:
Privatised infrastructure assets in the UK — including the electricity, gas and water networks — benefit from rising inflation because their returns are set by the regulator and linked to either the CPI or RPI index. The benefits generally outweigh the costs associated with rising inflation, such as staff, maintenance and materials, as the businesses are not labour-intensive.
Colm Gibson, managing director of Berkeley Research Group, said interest in UK infrastructure assets was likely to remain strong despite UK government threats to impose windfall taxes on parts of the sector such as oil and gas companies and electricity generators.
“Because utilities’ asset values and revenue streams are both indexed to inflation and backed by regulatory guarantees, these industries are regarded as safe havens by investors,” he said. “This is particularly true given the current inflation outlook.”

https://www.ft.com/content/62113516-4f4b-4a82-9e71-11845f56d65f

Actually I'm not sure whether the market is overly optimistic that UK government will not intervene. The government will risk public backlash if it allows utilities to profit too much from the public misery. Recall in May the UK government imposed a 25% windfall tax (though this is on oil & gas companies, not utilities).

Back in Malaysia, Tenaga share price has suffered greatly due to the market's doubt on Malaysian government's commitment to uphold the ICPT mechanism. Despite the government's pledge to compensate Tenaga for the under recovery, Tenaga cash flow will be strained. No one knows what happen in the next review 6 months later.

But comparing UK ro Malaysia, is the market justified in being pessimistic on Malaysian utilities assets while bullish on UK's?

Posted by dragon328 > 2022-07-07 09:02 | Report Abuse

@observatory, thanks for the news piece on LKS asset in the UK. This generally reinforces my view that regulated assets in the UK (and in other AAA/AA+ rated countries) are very much sought after for its long term appreciation potential and value protected by regulated tariffs.

As for LKS, I think YTLPower would not sell or list up Wessex Waters at low value, or for anything below 1.5x RCV. The longer it holds out, the regulated capital value base will just get larger along with inflation.
Wessex looks set to add easily another 500 million pounds to its regulated capital value by end of this 5-year regulatory period in 2025, when the new water tariffs for 2026-2030 shall be set based on the enlarged RCV and Wessex will enjoy much higher tariffs and revenue.

Posted by dragon328 > 2022-07-07 09:26 | Report Abuse

Wessex Waters RCV has increased by 2.4x from 1,474 million pounds in 2002 when YTLPower acquired it to 3,566 million pounds as in 2022.
Just imagine if its RCV increases by 2.4x again in next 20 years, Wessex RCV will balloon to about 8,600 million pounds by 2042. If valued at 1.6x RCV as per valuation given to Electranet, Wessex would be worth 13,760 million pounds or RM77 billion then.

Assuming the increase of 5,044 million pounds of asset value is funded 67% by debts, total debts at Wessex would be 2,315m + 5,044m*67% = 5,694m pounds. Equity value would be 13,760m - 5,694m = 8,066 million pounds or RM45 billion or RM5.50 per share!!

Posted by dragon328 > 2022-07-07 09:36 | Report Abuse

If we take a more conservative approach in estimating the increase in RCV:
2022 3,566m
2027 3,566 +500m = 4,066m
2032 4,066 + 600m = 4,666m
2037 4,666 + 700m = 5,366m
2042 5,366 + 800m = 6,166m

Hence, RCV would increase to 6,166m pounds in 20 years and Wessex would be worth 1.6x 6,166 = 9,866 million pounds
Debts will increase to 2,315 + (6,166 - 3,566)*67% = 4,057 million pounds
Equity value will be 9,866m - 4,057m = 5,809 million pounds or RM32 billion or RM3.90 per share

Posted by dragon328 > 2022-07-07 09:40 | Report Abuse

If we don't look too far away, just take current RCV of 3,566m minus off debts 2,315m, current equity value of Wessex is worth 1.6x 3,566 - 2,315 = 3,390 million pounds or RM18.7 billion or RM2.27 per share

That is 3.3x the current market cap of YTL Power, and you get all the other assets like PowerSeraya, 5G business, data centres and net cash of RM2.2 billion for free!

Posted by dragon328 > 2022-07-07 09:43 | Report Abuse

If the 5G business, data centre business and power export to Singapore project take off well, and PowerSeraya earnings post strong rebounds from FY2023, I am very confident YTLPower will be a 10 bagger in time.

Posted by lawpc128 > 2022-07-07 15:53 | Report Abuse

What about the Jordan attarat power plant, any updates?

Posted by dragon328 > 2022-07-07 20:58 | Report Abuse

No update on the Jordan project yet

Posted by observatory > 2022-07-07 23:38 | Report Abuse

@dragon328, yes, we've discussed about the UK regulatory asset being undervalued.

However, it seems that it's a market norm to heavily discount these asset heavy utilities. Not just YTL Power. LKS's son Victor Li, chairman of CK Asset Holdings and CK Infrastructure Holdings, also lamented their assets being undervalued.

It's not that professional investors don't see the potential. They probably want to be prudent, and focus on cash flow and dividends. If the company assets are sold for a fat profit in the future, and assuming the windfalls are indeed returned to shareholders as cash, count that as bonus. But these managers won't include the windfall into their valuation. When big players refuse to pay more for the shares, the share price remains depressed.

On the other hand, the controlling shareholders like LKS or Yeoh family could afford to view the values differently. This is because they call the shot. They can decide when to sell, what price to sell, and whether to distribute the sales proceed.

As retail investors, even long term ones, we have to set aside some buffer since we don't control the company.

Personally for me, as long as YTL Power continues to pay sustainable dividends (on the assumption that key businesses continue to do well), the downside is protected. I'm not be too concerned about share price. Any upside will then be a bonus.

Posted by dragon328 > 2022-07-08 09:54 | Report Abuse

Well said @observatory.

Yeoh family has been lamenting about how badly the market has underpriced their companies' share price. Even they cannot change how the market and other investors view the value of their companies or assets. They just need to find the right time to unlock value, just like how they disposed off Electranet.

That's the reason why I proposed to YTLPower to list up part of its stakes in Wessex Waters in a way to quickly realise the value of Wessex, and at the same time to take back some handsome cash for special dividends or future expansions. They may or may not consider it as they know the value of Wessex will always go up in time. They just need to make sure the asset is well managed in terms of operational efficiencies as well as corporate finance wise.

I think that cash flows are more important than share price fluctuations, as long as the various operating assets perform to expectation, cash flows will come and share price will follow.
I am not concerned at all with the current depressed share price level, it just gives me more time and chances to accumulate more.

Posted by observatory > 2022-07-16 13:22 | Report Abuse

After the collapase of UK Power Networks deal, KKR acquired a 25% stake in Northumbrian Water. Based on the acquisition price, the company is valued at £3,468m.

I checked the OfWat ranking, Northumbrian Water is also quite high on the table, which may be positive for valuation.

However, according to Forbe's article below, the original acquistion cost was £2.4 billion in 2011. That means the CAGR return over 11 years is only 3.4%. I'm a bit surprised that the return is rather low.
https://www.forbes.com/sites/robertolsen/2022/07/15/kkr-to-invest-1-billion-in-british-water-company-owned-by-li-ka-shings-ck-group/?sh=33bd74827576

Not to mentioned on one year basis, Pound Sterling has depreciated by 16% against US Dollar (from 1.42 to current 1.19). Given HK Dollar is pegged to US Dollar, the gain for Li's HK based companies will be even smaller.

Posted by observatory > 2022-07-16 13:27 | Report Abuse

According to company websites, Northumbrian Water serves 2.7 million customers, versus Wessex Water serves 2.8 million. They're probably in the same league. Northumbrian Water's valuation over its RCV (Regulatory Capital Value) could provide a guidance on how much Wessex Water is worth today.

Northumbrian's RCV can be found on page 53 of its 2021 Annual Report
"RCV at 31 March 2021 was £4,196.4m"
https://www.nwg.co.uk/globalassets/corporate/apr/annual-report-and-financial-statements-2020_21_final_1.pdf

Given KKR's transaction values the company at only £3,468m, the valuation put a discount of 1 - 3468/4196.4 = 17.4% on the RCV!

Posted by observatory > 2022-07-16 13:28 | Report Abuse

Additonoal information can be found in another document.
"Ofwat commissioned EE to assess the premium to RCV on listed companies. Its decomposition analysis indicated a residual market premium over RCV of 1.04 - 1.08x in February 2020, once outperformance from factors such as totex, debt finance and ODIs was reflected"

In other words, the earlier expectation was a slight market premium over the RCV. Figure 18 in page 88 also shows historically valuation swinged from 20% discount to 30-40% premium, and the mean was at single digit premium.
https://assets.publishing.service.gov.uk/media/5eda1e5ee90e071b734d2ca7/Northumbrian_Water_Reply_to_Ofwat_response_27.05.2020_NON-CONFIDENTIAL.pdf

CK and Hutchison have strong balance sheets. It's unusual for them to sell assets on the cheap. The 17% discount in the deal probably shows the current market condition is probably quite unfavourable.

The document has further explanation on market value versus RCV
"If investors expect the company to perform in line with the regulatory determination (e.g. in terms of costs, incentives and returns) in perpetuity, then the MV of the business will be equal to the RCV, and the MAR would be 1. If investors forecast that the actual performance of the company would be different to the regulatory settlement, then the MAR could be greater than 1 (if investors expect to perform better) or less than 1 (if investors expect to underperform)."