Introduction
The share price of YTL Power has been hovering around RM0.60 to RM0.75 in the past 2 years, a far cry lower from the RM1.50-1.60 level in 2015-2016. There are a number of reasons why the share price has dropped by half since FY2016 but I believe that it has bottomed up and is on its way to double or triple up to even move beyond its past glory days. I believe YTL Power may be worth RM3.85 to 7.55 a share, a whopping 530% to 1,040% of its current share price of RM0.725.
Why its share price has dropped by half since 2016?
YTL Power made a net profit of RM1,045 million in FY2016, EPS of 13.0 sen (based on share base of 7,717 million then) and declared a dividend of 10 sen per share. At share prices of RM1.50-1.60 then, the market valued it at a PER of 12x and dividend yield of 6.7%.
One of the main reasons for the start of the share price drop was due to the fallout of earnings contribution from its Malaysia power stations after the expiry of the 21-year Power Purchase Agreement (PPA) with Tenaga Nasional. That removed effectively RM200 – 250 million of annual earnings overnight from September 2015. Though YTL Power got some extension of PPA for its Paka power station for 3.5 years, the profit contribution was much lower than before due to lower capacity and lower tariff during the extension period.
Second reason for the dropping share prices was the reduced earnings contribution from Wessex Waters from RM900-980 million p.a. in FY2015-2018 to the current level of RM500-600 million p.a. in FY2019-2021. One reason for the earnings drop in Wessex was due to the sharp drop in interest rates from late 2018 (12-month Libor dropped from a peak of 3.12% in late 2018 to 0.45% in late 2020) which caused the water tariffs lower. Another reason was the lower pre-determined equity returns given by the authority in the 5-year determination period from April 2020 in the ultra-low interest rates environment.
Third reason was the sharp earnings drop in PowerSeraya from RM400-500 million p.a. in FY2014-2015 to losses of RM150-200 million p.a. in FY2019-2020. The gradual drop in PowerSeraya earnings was due to stiffer competition and over-supply situation in the competitive electricity market.
Forth reason was due to continued losses of its new Wimax division from FY2015, contributing losses of RM100-200 million p.a. until 2021.
Why Things are looking bright for YTL Power?
YTL Power may have hit a bottom and things are certainly looking up for the next few years. I shall examine the prospect of each of its business divisions and their potential value contributions to YTL Power.
(i) Wessex Waters
YTL Power bought the 100% stakes in Wessex Waters from the bankrupt Enron in 2002 at a discount to its Regulated Asset Base (RAB). Wessex Waters is one of the ten regional water utilities companies in the UK, regulated by Ofwat. It supplies water and provides water severage services to 2.8 million customers in South West England. It is a regulated asset with tariffs pre-determined for each 5-year period and performances regulated by Ofwat. The beauty of a regulated asset is that it never loses money and its asset base will always expand along with inflation. There are 10 water utilities companies regulated by Ofwat and Wessex has been ranked top in the past 10-20 years in Ofwat’s efficiency ranking, achieving “industry leading” status in the Environment Agency’s environmental performance assessment and having the least complaints per 10,000 customers for the 9th year running to 2020. A regulated water asset company shall be entitled to some bonus tariff payments if it outperforms its peers in Ofwat efficiency ranking.
YTL Power acquired Wessex in 2002 for 544.6 million pounds valuing Wessex at an enterprise value of 1,239.5 million pounds, which was at a 16% discount to the RAB of 1,474 million pounds then. Wessex’s RAB has since increased to 2.75 billion pounds in 2015, 3.35 billion pounds in 2020 and is expected to increase to 3.89 billion pounds by the end of regulatory pricing period in 2025. Its RAB has increased by 242% from 1,474 million pounds in 2002 to 3,566 million pounds in 2022.
YTL Power has been extremely patient in long term asset investments. It acquired 33.5% in Electranet Australia for AUD58.5 (RM122.9) million in 2000 and disposed it off for AUD1.026 billion (RM3.05 billion) in 2022, making a return of 24.8 times in 20 years!! The stakes in Electranet was sold to Australia Superannuity Fund at 1.6x RAB and about 2.5% dividend yield. It was a handsome gain for YTL Power to monetize this long term asset holding and it was a good long term investment for retirement fund like Superannuity Fund in sub-1% low interest rate environment with its regulated asset increasing over time.
With rising interest rates in next 2 years, Wessex is entering a rapid asset expansion phase with its RAB expected to increase by over 500 million pounds in 2020-2025 regulatory period. If we apply the same valuation of 1.6x RAB to Wessex as in the case of Electranet, Wessex should be valued at 1.6x 3,566 million = 5,706 million pounds (RM31.5 billion). Deducting off its net debt of 2,315 million pounds (12.8 billion), the equity value of Wessex to YTL Power should be worth 3,391 million pounds or RM18.7 billion, which is over 3 times YTLPI market capitalization.
You may ask why somebody would pay such a value for Wessex. First, it is a top quality regulated asset in a AAA-rated country with asset base increasing over time (Wessex RAB increased by 2.4x in 20 years). Investors will be assured of increasing asset value, more so during rising interest rate environment. Secondly, Wessex distributed a total of 450 million pounds of dividends during the 5 year period of 2015-2020, which averaged 90 million pounds per year, yielding 2.65% for an equity value of 3,391 million pounds. This yield is higher than 1-year Libor of 2.01% and US 5-year treasury bond rate of 2.5%. As such, Wessex is a very good asset class for retirement funds who are looking for steady yields and increasing asset value. Just imagine that if Wessex RAB increases by 2.4 times as in last 20 years, Wessex may be worth 13,808 million pounds 20 years later if we value it at 1.6x RAB of 8,630 million pounds then, giving an investor of 242% gains in asset base while enjoying steady and increasing yields. Revenue and operating profits will increase over time along with the increase in RAB. For instance, Wessex revenue has increased from 265.2 million pounds in 2001 to 514.7 million pounds in 2021. The recent purchase of Electranet by Australia Superannuity Fund is a good example of why retirement fund is willing to scoop up top quality regulated asset.
On the other hand, if YTL Power keeps its holdings in Wessex for another 20 years, the worth of its investment in Wessex would balloon to a whopping RM77 billion in enterprise value and RM45 billion in equity value then!! YTL Power’s investment in Wessex has increased 7.5x from RM2.45 billion in 2002 (544.6 million pounds at exchange rate of 4.50 then) to RM18.7 billion in 2022 (based on 1.6x RAB at exchange rate of 5.53 now). If we apply the same multiple taking into account of the strengthening pounds, YTL Power’s worth of investments in Wessex would increase to RM18.7 billion x 7.5 = RM140 billion!
Investors and analysts here will not appreciate the value and potential of Wessex as long as it is unlisted, and no one will look forward 20 years for YTL Power to realize such massive value in Wessex. For instance, CIMB analyst valued YTLPI’s 33.5% stakes in Electranet at only RM588.3 million based on DCF value at 8.0% cost of equity but YTLPI disposed it at RM3,050 million or 5.2x higher than value given by CIMB. The same CIMB analyst valued YTLPI’s 100% stakes in Wessex at only RM4,155 million based on 0.9x book value, for which may be worth 5 times higher. Maybank analyst valued Wessex at even lower RM3,587 million with no basis mentioned.
I reckon that in order for the market / investors / analysts to appreciate the potential value of Wessex, YTL Power should try to monetize part of the value through divestment of certain stakes to strategic investors or/and list up 49.9% stakes in London stock exchange. This is now the opportune time to do this as interest rates are still near record low and Wessex is at the start of a rapid asset expansion phase. Retirement funds or long term investors will be willing to pay 1.6x RAB value for a top notched regulated asset which is at the start of a multi-year expansion, as they will be able to ride on the expansion plan (buy now at a lower asset base compared to few years later after expansion) while they can still get funding at very low interest rates. A disposal of 49% stakes in Wessex will bring in proceeds of over RM9.0 billion to YTL Power while retaining 51% control over the company and enjoying the longer term expansion of Wessex value to potentially RM45 billion in next 20 years.
A table of summary valuation of Wessex based on different matrices:
|
Wessex |
(a) 1.6x RAB |
(b) 1.3x RAB |
(c) 1.0x RAB |
CIMB 0.9x Book |
|
Enterprise Value (RM million) |
31.5 |
25.6 |
19.7 |
|
|
Equity Value (RM million) |
18.7 |
12.8 |
6.9 |
4.9 |
|
Equity Value (RM per share) |
2.28 |
1.57 |
0.84 |
0.60 |
(ii) PowerSeraya
YTL Power acquired 100% stakes in PowerSeraya in 2008 for SGD3.8 billion right after the collapse of Lehman’s Brothers. PowerSeraya is the second largest power generation company in Singapore with registered capacity of 3,100MW. It operates in a competitive merchant electricity market which has an electricity pool that sets electricity wholesale price every half an hour based on supply and demand. To mitigate fluctuating electricity sales prices, PowerSeraya has its own electricity retails company, Seraya Energy, that sells short term electricity supply contracts (3 months to 3 years) to commercial, industrial and residential customers. PowerSeraya has contracts for differences (CfD) with Seraya Energy to pass on the fluctuations of pool prices. PowerSeraya then enters into forward hedging contracts on fuel oil prices and FX to lock in fixed non-fuel margin for its CfD contracts with Seraya Energy. Essentially it is a vertical integrated structure where PowerSeraya earns some fixed profit margin free of fuel price and FX risks.
As it is a competitive merchant market, the generation market as well as the retails electricity market is subject to competition from other players with profit margin squeezed when there is over-supply situation (like in 2015-2020) but getting good profit margin when supply is tight (as in 2007-2014). PowerSeraya was earning steady non-fuel margin of SGD 30 – 35 / MWh in 2004-2007 on generation of steady 9,500-10,500 GWh per year as demand-supply was normal. During financial crisis in 2008-2009, oil prices collapsed in late 2008 and there was no new generation capacity coming onstream, supply became increasingly tight pushing up non-fuel or generation margin to as high as SGD60-80 / MWh. However, the subsequent new planting up by various generating companies (gencos) and the availability of LNG supply in 2013 had tipped the balance to over-supply situation, collapsing generation margin to almost zero in 2017-2018. With the catch-up of electricity demand and no further new capacity plant-up and phasing out of weak players like Hyflux, situation became better from 2019.
Things are certainly looking up for PowerSeraya in next 2 years as supply becomes tighter and it aims to complete the acquisition of Hyflux generation asset later this year. Generation margin is recovering well with PowerSeraya turning in profit of above RM200 million in FY2021. Non-fuel margin is set to jump further from 2023 as the current gas supply contracts (both piped gas and LNG) come to an end in Mar 2023. Gencos signed up for too much LNG gas supply in 2013 and have been bound by strict take-or-pay commitments in the gas contracts in past few years, hence selling electricity at cut-throat prices just to burn off the committed gas every year. Such take-or-pay obligations will fall off from March 2023 so gencos will not compete hard to sell electricity cheap, but will try to earn a healthy margin to recover losses in past few years of over-supply.
Besides CfD with own retailer, Singapore gencos sell certain portion of electricity generated via vesting contracts. Vesting contracts are a form of CfD entered between gencos and the incumbent retailer MSSL and were introduced in 2004 to curb market power of big gencos. Current vesting level is about 18%-19% of each genco’s generation, i.e. 18%-19% of each genco’s generation is sold to MSSL at the vesting contract price. The EMA has determined the non-fuel margin of vesting contracts for 2021-2022 period to be SGD51.27 / MWh. This vesting non-fuel margin is well above the current retails non-fuel margin which is competitive at SGD10-20/MWh now.
Assuming gencos’ non-fuel margin recovers gradually from SGD10-20/MWh now to about SGD30/MWh (which was the steady margin in 2004-2007) from 2023, PowerSeraya would be able to generate gross profit margin of 10,000 GWh x SGD30/MWh = SGD300 million per year. If supply becomes tight after gas supply contracts expire in Mar 2023, or EMA introduces higher vesting contract level to 45% or above (like what it did in 2004) to curb market power, non-fuel margin might shoot up to SGD50/MWh or higher and PowerSeraya would be able to make gross profits of SGD500 million a year.
PowerSeraya has about SGD2.0 billion debts currently paying interest rates of about 1.3% p.a. or interest costs of about SGD26 million a year. Depreciation charges amount to some SGD75 million a year. Operating costs (office overhead, staff costs, administration costs, etc) amount to about SGD50 million a year. Hence, from 2023 onwards, PowerSeraya would be able to make EBITDA of SGD300-500m – 50m = SGD250-450 million a year from generation. (For reference, PowerSeraya achieved actual EBITDA of SGD301 million in FY2007 and SGD355 million in FY2008.) Its subsidiary PetroSeraya earns a steady oil storage tank leasing income of about SGD22 million a year. Total profit before tax may top SGD250-450m +22m – 75m – 26m = SGD171-371m a year. At corporate tax rate of 16%, net profit may come in at SGD143m to SGD312 million a year.
Cash flows will be even stronger at SGD208m to SGD377 million a year as we add back depreciation charges of SGD75m and deduct maintenance capex of SGD10m. YTL Power may recognize profit contribution of RM429m to RM936 million a year and get cashflows of RM625m to RM1,131 million a year from PowerSeraya from FY2024.
Again to realize the value in PowerSeraya, YTL Power may opt to list up to 50% stakes of PowerSeraya in a REIT listing in Singapore stock exchange or sell a 30%-49% stake to a strategic partner. I reckon that PowerSeraya may be valued at 7.0% free cash flow yield or 5.0% dividend yield, or 20x PER. A 7.0% FCF yield is attractive in Singapore where risk free rate is at 1.3%. Hence, PowerSeraya may be valued at RM429m to RM936m x 20 = RM8.6 – 18.7 billion.
The best time to monetize PowerSeraya may come in 2023 or 2024 after non-fuel margin recovers meaningfully to SGD30/MWh level while giving potential investors upsides of additional contribution from the acquired Hyflux asset and adding more efficient generation capacity in later years if cheaper fuel supply is available after 2023. Monetisation of 49% stakes in PowerSeraya may rake in cash of RM4 billion to RM9 billion to YTL Power.
(iii) Jordan Power Venture Company
YTL Power entered into a joint venture with Estonia utility company Enefit and a local partner to develop a 554MW oil shale-fired power plant in Jordan. Enefit subsequently sold down their stakes to 10% from 55%, with YTL Power increasing stakes from 30% to 45% and China Yudean Group taking up 45%. Jordan local partner NEI exited its 10% stake. The joint venture company, Attarat Power has entered into a 30-year Power Purchase Agreement with the Jordan national utility company Nepco with government guarantee from Jordan. The PPA may be extended by another 10 years to total 40 years.
The construction of the power plant is over 98% complete with final technical teething issues being tidied up. The commercial operations date (COD) is being held up now pending an arbitration filed up by Nepco against the project company Attarat Power on “grave deception” alleging that the electricity tariffs signed in the PPA were too high. News reporting in March 2022 indicated that Nepco was losing the case and an international arbitration court judgement would be coming soon. Hence, it is reasonable to assume that Attarat Power may be able to achieve commercial operation in 2H 2022.
The total costs for the oil-share power plant is USD2,100 million with equity portion of estimated USD600 million. At high single digit project IRR, the project shall provide annual cash flows to equity of about USD100 million a year, rising to over USD200 million after debts are fully repaid from year 16.
As such, Attarat Power may be valued at USD 2.0 billion based on initial free cash flows yield of 5% in year 1-15 jumping to 10% from year 16. YTLPI’s 45% stakes in Attarat Power will be worth USD 900 million or RM3.7 billion. At least, it should be worth half of it that is USD450m or RM1.8 billion. YTL Power may consider placing out 10% to Enefit or China Yudean or another strategic partner to monetize part of its investment.
(iv) Indonesia Jawa Power
PT Jawa Power is a special purpose project company that owns and operates a 1,220MW large coal-fired power station in Jawa east, Indonesia. It sells electricity to PLN under a 30-year Power Purchase Agreement. YTL Power purchased a 35% stake in PT Jawa Power in 2004 and has since pared it down to 20%. YTL Power also owns 100% stakes in the operation & maintenance (O&M) company that operates the power plant.
Jawa Power contributes a steady profit of RM170 million a year to YTL Power. As it has a finite commercial life governed by the 30 year PPA, DCF valuation may be the best valuation method to value Jawa Power. Based on 8% cost of equity, CIMB analyst valued it at RM1,540 million to YTL Power, which is reasonable to me.
(v) Mobile Broadband Company – YTL Comms
YTL Comms was set up some 10 years ago after being awarded a wimax licence by Malaysia government. It has been struggling to achieve profitability though losses are narrowing in last 2 years to just RM16 million in second quarter of FY2022.
Things are set to change with YTL Comms getting equal access to the new 5G broadband network being rolled out by Digital Nasional Berhad (DNS) at a cost of RM15 billion. The initial capital cost will be bored by DNS who will then offer a portion of the equity stakes to telcos who opt to participate in the ownership of the network. That means that YTL Comms will not need to fork out heavy capital expenditure but may roll out its 5G services almost on equal basis with other bigger telcos.
YTL Comms currently has over 1.0 million mobile network users under its brand Yes. With the roll out of 5G network, YTL Comms will be able to compete on equal basis with other telcos like Maxis or Celcom as everyone pays the same tariff charges to DNS. The pie of 5G mobile network in Malaysia is big with over 10 million active users. Assuming YTL Comms will get a 15% share of the pie and assuming a monthly fee of RM50 for its 5G services, annual revenue to YTL Comms may amount to 1.5m x RM50 x 12 = RM900 million.
Telcos typically enjoy EBITDA margin of about 50% (eg. DIGI EBITDA margin 50% in FY2020, 48% in FY2021), more so for YTL that is well know of strict cost controls. Hence, YTL Comms may earn a EBITDA of RM450 million a year.
Telcos are typically valued at about 10x EBITDA (eg. DIGI market cap of RM30 billion on EBITDA of RM3.0 billion). As such, YTL Comms may be valued at RM450m x 10 = RM4.5 billion. A more conservation valuation is 8x EBITDA that is RM3.6 billion.
After it achieves steady earnings, YTL Power can then consider listing up a portion of YTL Comms on Bursa stock exchange or selling a strategic 20%-30% stake to a telco partner like one from Korea. A disposal of 25% stake in YTL Comms would net in RM1.1 billion to YTL Power and recoup most of the capital it has poured in this communications business in past 10 years.
(vi) Cash holdings and Debts
YTL Power disposed off its 35% stakes in Electranet Australia for RM3.05 billion in Feb 2022. This effectively turns YTL Power into a nett cash company at the holding level.
Investors may be deterred by purely looking at the massive debts at YTL Power’s balance sheet. These debts are high as YTL Power consolidates debts of various subsidiaries which are mostly ring fenced at the subsidiary level. For instance, Jordan Attarat Power may have total borrowings of USD1,500 million and YTLPI may have consolidated RM2.7 billion of debts in its balance sheet. But this debt is fully ring fenced at the project company level Attarat Power, meaning that any default at Attarat Power will not cause any cross default nor have any repercussion to YTL Power level. These debts will be serviced solely by Attarat Power with its own operating cash flows and YTL Power will not need to pump in any money to help servicing the borrowings there.
As of 31 Dec 2021, YTL Power has total debts of RM30.8 billion on its balance sheet and gross cash holdings of RM10.3 billion, hence nett debt of RM20.5 billion. An estimated RM12.8 billion of nett debts sit in Wessex Waters company level, RM6.0 billion in PowerSeraya, RM2.7 billion in Attarat Power. PowerSeraya may have cash of SGD200 million and Attarat Power USD300m. Hence, after we remove nett debts ring fenced at subsidiary level, YTLPI actually may have nett debts of RM20.5b – 12.8 – (6.0 – 0.6) – (2.7 – 1.2) = RM0.8 billion. This is lower than the estimated nett debt of RM1.1 billion by Maybank analyst and RM7.4 billion by CIMB analyst.
After the disposal of Electranet for RM3.05 billion, YTL Power will turn to a nett cash position at holding level with estimated nett cash of RM2.2 billion or 27 sen per share.
(vii) Future Opportunities
With a nett cash position, YTL Power is embarking on various new projects to expand its earnings base:
(a) Solar Power & Data Centre
YTL Power is acquiring a piece of land of 664 ha at Kulai for development into a solar power farm of size 500MW. Such solar power may be used to power up data centres at attractive tariffs to data centre owners and provide good returns to YTL Power. Recall that the recent large scale solar power tender by Energy Commission ended up with winners at tariffs as low as 17 sen/kWh. In comparison, data centre owners pay at least SGD0.28/kWh or 84 sen/kWh in Singapore. With battery storage solutions that add 30% of costs, YTLPI’s cost of building the solar farm may be about 22 sen/kWh and may sell up to 84 sen/kWh to data centre owners from Singapore. Hence, this may bring in profits of up to RM438 million a year (500MW x 1000 kW/MW x 4 hours/day x 365 days x 60 sen/kWh) when it is fully developed as a 500MW solar-powered data centre. If a 30% discount to Singapore electricity tariff is given to data centre owners, this project may still bring in profits of about RM268 million a year for next 20-25 years. At 7% free cash flow yield, this project may add a value of RM3.8 billion to RM6.3 billion to YTL Power valuation.
(b) Electricity Export to Singapore
Singapore government launched a Request for Proposals (RfP) on 12 November 2021 to solicit interests for import of up to 1,200MW of electricity power to Singapore for diversification of power sources. Submission of proposals closed on 14 April 2022. YTL is expected to be one of the frontrunners to secure part of the power import. Options are setting up a a solar power farm in Johor and producing green hydrogen fuel in Malaysia. This is the first phase of a bigger power import plan by Singapore who aims to import up to 4,000MW of renewable energy by 2035.
In preparation for such power import, Singapore EMA has started some trial runs, one of which is to import 100MW from Peninsular Malaysia for 2 years. YTL has won this bid to supply 100MW to Singapore. Hence, YTL has first mover advantage in securing the subsequent bigger packages.
Assuming that YTL Power will win a 500MW bid in the first phase of Singapore power import tender, this may potentially bring in profits of RM268 million to RM438 million a year, and add a value of RM3.8 billion to RM6.3 billion to YTL Power valuation.
(c) Acquisition of Distressed Assets
YTL group is well known for buying quality assets at distressed sale, eg. buying Wessex at a discount to RAB from Enron in 2002, buying Lot10 and Starhill from Taiping Co during 1998 financial crisis.
Opportunities may be coming in next 2-3 years as the world is entering a rising interest rate environment. US Fed is expected to raise interest rates by 5 to 7 times this year and may start quantitative tightening cycle as early as next year. US yield curves have just inverted, history shows that US economy may go into recession in 1-2 years after yield curves invert. Distress sales may be available again as early as 2023.
Good deals were hard to come by during the past decade from 2009 to 2021 as interest rates were kept at near zero level that has inflated asset valuation. Cheap money was abundant to chase after assets at exorbitant valuation. That is the reason why YTL Power was not able to find any good deal that fits into its conservative approach.
However, timing is right now for YTL Power to try to monetize some of its matured assets like Wessex and PowerSeraya at a premium while interest rates are still low, then wait for right time in next 2-5 years to scoop up good assets at a discount.
Summary
(i) Sum-of-Parts Valuation
We can now do a sum-of-parts valuation of YTL Power using analysis above and compare to value given by CIMB and Maybank analyst:
|
|
Blue Sky Case (RM million) |
Conservative Case (RM million) |
CIMB (RM million) |
Maybank (RM million) |
|
Wessex |
18.7 |
6.9 |
4.9 |
3.6 |
|
PowerSeraya |
18.7 |
8.6 |
5.3 |
0 |
|
Jordan Power |
3.7 |
1.8 |
0 |
0.5 |
|
Jawa Power |
1.5 |
1.5 |
1.5 |
1.2 |
|
YTL Comms |
4.5 |
3.6 |
1.2 |
0.1 |
|
Data centre |
6.3 |
3.8 |
0 |
0 |
|
Export to Sgpore |
6.3 |
3.8 |
0 |
0 |
|
Nett cash |
2.2 |
2.2 |
(6.5) |
1.9 |
|
TOTAL |
61.9 |
32.2 |
6.4 |
7.3 |
|
Total RM per share |
7.55 |
3.93 |
0.78 |
0.90 |
Analysis above shows that YTL Power may potentially be worth up to RM3.93 - 7.55 per share if it takes up initiatives to unlock value of its various assets in next 2-3 years to create a 10x bagger.
(ii) Cash flow Valuation
We can similarly do a cash flow valuation based on analysis of its subsidiaries above:
|
Annual cash flow |
Blue Sky Case (RM million) |
Conservative Case (RM million) |
CIMB (RM million) |
Maybank (RM million) |
|
Wessex |
498 |
387 |
385 |
418 |
|
PowerSeraya |
1,131 |
625 |
180-360 |
196-250 |
|
Jordan Power |
369 |
185 |
0 |
0 |
|
Jawa Power |
170 |
170 |
0 |
170 |
|
YTL Comms |
450 |
300 |
(100) |
(100) |
|
Data Centre |
438 |
268 |
0 |
0 |
|
Export to Sgpore |
438 |
268 |
0 |
0 |
|
Others |
66 |
57 |
(100) |
(400) |
|
TOTAL |
3,560 |
2,260 |
365-545 |
284-338 |
|
RM per share |
0.43 |
0.27 |
0.04-0.07 |
0.03-0.04 |
YTL Power achieved positive operating cash flows (before capex and ignoring working capital changes) of RM1,762 million for FY2021 and RM1,310 million for FY2020. Capex was high at RM1.7 billion in FY2021 and RM1.3 billion in FY2020 due to construction costs for the Jordan power plant, hence limiting its ability of paying dividends. As Jordan power plant is near completion, hence capex for next 2 years will be minimum unless new projects like the solar power farm take off.
With PowerSeraya recovering well and YTL Comms rolling out 5G services, I am confident that YTL Power will be able to achieve annual operating cash flows of minimum RM1.7 billion just from existing assets and minimum RM2.2 billion when it fully develops the 500MW data centre and bag a 500MW power export to Singapore. YTL Power will be able to declare dividends back to 10 sen or even 15 sen every year from FY2023 onwards. Using a 7% free cash flow yield as valuation, YTL Power shall be valued at RM0.27 – 0.43 / 7% = RM3.85 to RM6.15.
In summary, whether we analyse it based on SOP or cash flow valuation, YTL Power should be worth a lot higher than RM0.725. With YTLPI management now also actively finding ways to increase its market capitalization so as to raise its profile and be able to bid for big assets at any distressed sales coming soon, the interests of the management and shareholders are aligned. YTL Power will be a multi-bagger in next 2-3 years.
Dragon Leong
21 April 2022
https://klse.i3investor.com/web/blog/detail/dragon328/2022-04-22-story-h1621549755-YTL_Power_is_potentially_a_10x_Bagger
