- We maintain HOLD on YTL Power International
(YTLP), with an unchanged fair value of RM1.68/share based on a 15% discount to
a sum-of-parts value of RM1.98/share.
- We maintain YTLP’s FY13F-FY15F net profits as
our forecasts have not incorporated any extension in the sale of electricity
from the group’s Malaysia-based power plants post-September 2015.
- YTLP’s Paka and Pasir Gudang power plants were
not included in the 10-year extensions to their power purchase agreements
(PPA), according to the Energy Commission’s announcement yesterday. Only three
companies have secured extensions to their PPAs – 675MW Genting Sanyen, Segari
Energy Ventures’ 1,303MW in Lumut and TNB Pasir Gudang’s 275MW block.
- Additionally, the YTLP-Marubeni Corp
consortium also failed to secure the 1,000MW-1,400MW Prai combinedcycle
gas-fired power plant. The Energy Commission awarded the tender to Tenaga,
which proposed a plant with a capacity of 1,071MW and a levelised tariff of
34.7 sen/kWh.
- We believe these developments are largely
within market expectations. Likewise, we have not included any extension to
the PPAs or new power plant concessions
in our DCF valuation for the power division.
- We remain concerned about:- 1)Need to find a replacement for the two
power plants over the next three years as our preliminary estimates indicate
that the cessation of their operations could shave group earnings by up to 15%
in FY16F.
2)Lack of
domestic catalysts for the stock as the heightened competitive landscape dims
the group’s prospects in securing fresh concessions in Malaysia.
3)Further
losses in the Yes WiMax division, given the group’s rising capex. Recall that
the group has indicated that Yes will need a subscriber base of 1 million (vs.
over 400,000 currently) to break even.
4)
Uncertainties in new investments such as the group’s investment in a 30% stake
in an Estonian state oil company-led oil shale project in Jordan, which could cost
up to US$5bil.
- It has been speculated that 1MDB could make a
bid to acquire YTLP’s power plants. But this is uncertain without a PPA
extension as the Energy Commission had indicated that PPA renegotiations will
not be revisited after the Track-2 tender. But upside risks to the stock stem
from the possibility of holding company YTL Corp undertaking a privatisation
exercise for YTLP.
- The stock currently trades at a fair FY13F PE
of 10x – within its three-year diluted PE band of 10x-16x. But current gross
dividend yield of 2.8% appears mild for a stock with a recurring earnings
profile.
Source: AmeSecurities
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