Tuesday, October 28, 2014

YTL Corp ... More Generous Dividends In Future !!

It has declared an interim dividend of 9.5 sen for the financial year 2014 ended June 30. This is the third interim dividend declared for FY2014, bringing the total to 12 sen per share.

The unusually high dividend declared by YTL Corp raises the question of whether the company which has a presence in water treatment, power generation, cement manufacturing, hotels, and telecommunications, will continue to be a generous in the future.

YTL can afford to pay high dividends if it wants to, given its huge cash hoard and its subsidiaries’ continued earnings growth. The group had rm1.38 billion in cash as at June 30 2014 while its borrowings amounted to rm40.7 billion, including current liabilities of rm8.8 billion.

If they want to, they can sustain the high dividend payout. However there are better ways to utilize the cash to generate future growth for the group.

About 50% of YTL Corp’s net profit came from its utilities business, with YTL Power contributing the bulk of it. The IPP is a cash cow, as it owns PowerSeraya in Singapore and Wessex Water in the UK. It also has a power purchasing agreement in Malaysia.

However YTL Power is facing the possibility of not having any new power generating assets in Malaysia as its PPA is expiring in 2015. The absence of any major capex may prompt YTL Power in which YTL Corp has a 50.63% stake to distribute its huge cash pile as dividends.

YTL Power can declare higher dividends to distribute its cash. It is not an issue for YTL Power’s shareholders if the company does not have any major power plant projects here soon, because most of them are holding the stock to earn dividends.

As at June 30 2014 YTL Power had rm8.96 billion in cash and bank balances. Its short term borrowings stood at rm2.07 billion while its long term borrowings were quite high, at rm21.5 billion.

Even if its PPA is not renewed beyond 2015 and having withdrawn from the Project 4A power plant, YTL Power still has capex commitments. This is because it owns YTL Comm Sdn Bhd, the 4G Internet network provider.

For FY2014 YTL Comm pre tax loss shrank to rm170.4 million from rm277.2 million previously. Revenue doubled to rm832 million from rm464 million a year ago.

YTL Power had already spent rm1.48 billion purchasing property, plants and equipment in FY2014.

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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.