Tuesday, November 12, 2013

YTL Power - future plan

In mid Oct 2013, it was reported that YTL Power stunned the industry when it outbid the likes of Tenaga, 1MDB and Malakoff for a tender to build and operate a 2000MW coal fired plant, Project 3B.

The tender will only be awarded early 2014 but sources say YTL Power’s bid of 25.12 sen per kilowatt hour was the cheapest when the documents were opened end Oct 2013.

With rm38 billion worth of bonds issued, it is no surprise that there is some urgency for 1MDB to list some of its assets to ease its financials. Nonetheless YTL Power is just as hungry for a new power asset as 1MDB.

Since building and operating the first IPP in Malaysia in 1993, it has not won any new projects for power plants. On top of that, the group’s two power purchase agreements for some 1212MW of capacity will expire in Sept 2015 after it failed to renew them.

Apart from putting in a competitive bid for the 2000MW power plant, the YTL group is also said to be a strong contender for the HSR project between KL and Singapore.

Sources say the group is also tipped to get the mandate to redevelop the old Customs, Immigration and Quarantine building in JB. YTL Is making inroads in Johor.

Winning a new PPA would be a huge catalyst for YTL Power, but whether it translates into cash dividends for shareholders remains to be seen.

On the one hand, the group’s rm3 billion foray into 4G broadband is at the tail end of capex and the business is on its way to breakeven.

However its CEO affirms that the shareholders will be rewarded going forward.

YTL Power’s dividends have been on the downtrend in the past three years prior to Nov 2013 with cash dividends stopping completely in 2013. At the same time, the group is sitting on a cash pile of rm9.6 billion.

The group had spent some rm842 million buying back 500.9 million of its own shares in 2013. These cash could have been returned directly to shareholders via a dividend.

Long term shareholdings like YTL Corp are definitely seeing the benefits. Some 250 million YTL Power shares were cancelled in Aug 2013, effectively boosting YTL Corp’s stake to 53%.

YTL Power’s cash pile of rm9.3 billion has not diminished in the past financial yearm supported by strong cash flows from its other segments. Even net debt remained relatively flat, standing at rm13.173 billion as of June 2013.

Moving forward, the group should improve as capex on the 4G rollout slows down. The group has just about spent the rm3 billion it had allocated for its 4G investment. There is going to be more capital outlay to upgrade to LTE but it will have enough cash flows to invest in the future without huge amounts like it had in the past.

With no clear visibility of it landing the 2000MW coal fired plants, investors of YTL Power will continue to monitor the group’s brandband business which is the only segment with high growth potential considering its other assets are the stable cash generating type.

The 4G investment will break even by 2014 and points out that the number of subscribers is approaching the half million mark, the breakeven point.

However its mobile broadband division is still making losses.

Notably, given the large capital outlay depreciation and amortization make up a substantial amount of the segment’s expenses so breaking even at an operational level could be much closer.

Note however the group is still in the process of rolling out its services in the under served Sabah and Sarawak markets, which could be a catalyst for subscriber numbers going forward.

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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.