Tuesday, September 16, 2014

YTLPower ... Will Its Dividend Payout Sustainable !!!

Its latest dividend payment announce on Aug 28 2014 will be the first in almost two years since the group began its rm3 billion foray into the 4G telcos business.

The question is whether the payout is sustainable and if YTLPower could be undervalued given several potential catalysts in the pipeline for its power business.

YTL Corp is in talks with India’s Hyderabad based NSL group to buy a 49% stake in NSL Orissa Power.

YTL Power has been active in securing more plants overseas. Another potential catalyst for YTL Power is the signing of a PPA in Jordan for a 470MW oil shale power project, in which the group has a 30% stake. The Arab’s cabinet has already approved the PPA and it is finally close at being signed after some initial delays due to negotiations on the tariff.

The PPA is for 30 years with an option to extend for another 10 years. The plant is scheduled to begin operations in 2018. Post construction, YTL Power will also have a majority stake in the plant’s operation and maintenance.

Another short term boost for YTL Power is the potential renewal of its expiring PPAs – the 800MW combined cycle gas turbine plant in Paka, Terengganu and the 400MW CGT plant in Pasir Gudang, Johor – to address a potential shortage in power over the next few years from Sept 2014.

Going forward, the primary concern is the sustainability of YTL Power’s dividend payments and the turnaround of its 4G venture.

Observers remain cautious on YES’ losses given the group’s commitment to expand its services to 10000 schools in Malaysia under the 1BestariNet project. There is a likelihood that the breakeven level may not be achievable after YES achieves its targeted subscriber base of one million.

The stock currently (Sept 2014) trades at 12 times FY2015F PER, at the high region of its three year PER range of 10 times to 12 times.

The concern over YES 4G’s performance is not without cause, although the losses have narrowed in the past one year.

Industry observers estimate that YES 4G gas only slightly less than 250000 paying subscribers far below the half a million number it needs to break even.

While the power and telecommunications have taken centre stage in YTL Power, the bulk of the group’s earnings comes from its water and sewerage segment that makes up some 70% of its profit before tax. This stems primarily from its Wessex Water business in the UK which was acquired in 2002.

It is acquisitions like this that showcase YTL Power’s prowess on the international stage …

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