Saturday, April 12, 2014

YTL Power - Mobile Broadband To Generate Higher Revenue

It had lost its bid for the Prohect 3B power plant, is set to be without domestic power assets when its two PPAs expire in 2015. While it is expected to actively bid for upcoming power plant projects, YTL Power’s future growth catalyst in the meantime, seems to lie in the performance of its mobile broadband network division.

For the financial year ended June 2014, YTL Power’s two power plants in Malaysia contributed revenue of rm1.12 billion or 7% of total group revenue. With the existing concessions enduing in Sept 2015, the conglomerate needs to find a new revenue source to rectify the earnings shortfall due to the expiration of the PPA in May 2014.

The group will remain in the running when the tender for Tracks 4A and 4B – two upcoming power generation projects.

YTL Power has indicated it is keen to maintain its presence in domestic power plant assets.

Going forward, YTL Power’s only option to grow its utilities business at the moment (April 2014) is to acquire power assets overseas. With rm9 billion cash in its coffers, the group can certainly afford to grow its business via acquisitions or new joint ventures.

As it stands, YTL Power’s 60% owned subsidiary YTL Communications Sdn Bhd may hold the greatest potential in generating higher revenue for the group.

The mobile broadband network division, which was established in 2010 with the launch of YES 4G, has reported tremendous revenue growth over the past three years prior to 2014.

This segment’s revenue grew from rm26.4 million in FY2011 to rm446 million in FY2013. For FY2014 the division delivered cumulative revenue of rm446 million nearly the same amount of revenue for the whole of FY2013.

Losses have also been pared down at a slower pace compared with revenue growth. The division reported losses rm309 million and rm269 million in FY2012 and FY2013. With the help of revenue growth, losses are expected to be narrower in FY2014.

With the revenue growth is encouraging, YTL Communications is certainly expected to become a profit contributor at some point. Investments totaling rm2 billion were made over the past 4 ½ years prior to 2014 to develop its 4G network, which was built with the LTE platform in mind.

Further investments for its LTE rollout will not cost more than its current (April 2014) capex for building the YES 4G infra.

Nevertheless the lack of earnings growth driver may have contributed to the selloff of YTL Power in early April 2014.

It is starting to put its treasury shares to use.

While its balance sheet and track record in power assets remains solid, the group will need to win the next round of local power plant contracts to maintain its IPP credentials. It will also need to work towards recouping its investments in the mobile brandband segment which has so far (April 2014 run into the billions.

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Please note that all data given are merely blogger's opinion. It is strongly recommended that you do your own analysis and research before investing.