Thursday, October 31, 2013

AmResearch raises YTL Power's fair value

AmResearch raises YTL Power's fair value
Business & Markets 2013
Written by Cynthia Blemin of  
Thursday, 31 October 2013 11:23

KUALA LUMPUR (Oct 31): AmResearch has maintained its hold call on YTL Power International Bhd with a higher fair value of RM1.86, following news that it had submitted the lowest bid for a 2,000MW power plant job.

The Edge Financial Daily reported today that YTL Power has submitted the lowest bid at 22 sen/kWh for the Energy Commission’s tender of Project 3B involving a 2,000MW greenfield coal-fired power plant.

The research house noted that YTL Power, which submitted the bid with Ranhill Power, has proposed Tanjung Tohor in Johor as the site for the new plant which is expected to cost RM12 billion and scheduled to be commissioned in stages in October 2018 and April 2019.

But The Edge also reported that the proposal may have some compliance issue due to its engineering, procurement and construction partner.

“If YTLP successfully secures this power purchase agreement (PPA), it should significantly improve the stock’s prospects given that its current PPAs for the Paka and Pasir Gudang power plants expire in September 2015.

“Assuming project IRR at 9%, interest cost at 6% and debt:equity ratio of 80:20, we estimate this project could add 29 sen or 16% to YTLP’s current SOP,” it said.

Upon full completion, the project could add RM440 million to the group’s net profit, or 33% of FY16F earnings, said AmResearch.

However, the research house highlights that any earnings impact will only commence in FY19F onwards.

Hence, it maintains its FY14F-FY15F assumptions for now pending an official announcement by the Energy Commission.

Additionally, AmResearch noted that the capex commitments together with other overseas investments may continue to constrain YTLP’s dividend policies, with no distribution declared since 1QFY13.

The stock currently trades at a fair FY14F PE of 11 times – within its three-year diluted PE band of 10 times-16 times, it added.

Publish date: 31/10/13

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