Not out of the game yet
The potential clinching of Track 3B will allow YTL Power to returnto the regulated assets space in Malaysia. Although its broadband business may not break even in FY06/14, we believe the growth in subscriber base is encouraging.
Due to the revision in our recommendation structure, YTL Power is now an Add (from Outperform previously). Our SOP-based target price is unchanged at RM2.55. We expect the clinching of Track 3B to catalyse the stock.
Track 3B not all that is in store
Winning the Track 3B 2GW coal-fired power plant contract will be a game changer for YTL Power. The tender will only be awarded in early-2014 but industry sources said that YTL Power's bid of 25.12 sen per kilowatt hour (kWh) is the lowest compared to 1MDB's 25.33 sen per kWh and Tenaga's 28.07 sen per kWh. That said, assuming YTL Power fails to clinch Track 3B, we believe there are more opportunities to come, such as future bids for more generation capacity moving forward, given that the government has clarified the base price of LNG at RM41.68/MMBtu. We believe the pricing of the LNG paves the way for the Energy Commission (EC) to call for gas fired power plant tenders soon.
YES subscribers to grow
YTL Power's broadband business subscriber base is approaching the 500,000 mark. The group's mobile broadband segment subscriber growth will be supported by its 1BestariNet project, which has approximately 10m users that include parents, teachers and students. 1BestariNet users could be converted into subscribers of the group‘s mobile broadband services.
80% of revenues from overseas
More than 80% of YTL Power's revenue is generated from non-Malaysian businesses in Singapore (Power Seraya) and the UK (Wessex Water). This percentage is expected to go up once its power purchase agreement (PPA) in Malaysia expires in 2015. The diversification renders YTL Power's earnings relatively resilient to domestic economic cycles as it operates in various countries.
Publish date: 10/12/13