Ytlpower oh Ytlpower by MIDF

Maintain NEUTRAL
A company in transition Target Price (TP): RM1.60

• YTL Power (YTLP) share price has been on the rise during the past one and a half months, from RM1.52 in early June to RM1.68 at yesterday’s close. 
• The company is in a transition phase. It is on the lookout for new business opportunities to make up for the impending expiration of the PPA for Paka and Pasir Gudang power plants. 
• It will be building a power plant in Jordan and plan to further expand its portfolio of regulated assets. 

• We maintain NEUTRAL on the company. Putting its cash to work. YTL Power’s 30%-owned JV with Enefit Jordan (65%) and Near East Investments of Jordan (5%) to build a 500MW oil shale-fired power plant has received the green light from the Jordan government. The RM15b project is expected to be operational by 2017. At current juncture, it will probably take another 6 to 12 months for the project to start construction. YTLP’s equity portion in the project is likely to be funded by its sizeable cash pile of RM10.9b. This project is part of the plan to make up for the impending expiration of the PPA for its power plants in Paka and Pasir Gudang. 

Boosting its credentials ahead of Track 3B. YTL Power will be the first Malaysian IPP to have a presence in Jordan, further boosting its international credentials. YTLP does not have the track record of owning and running a coal, hydro or renewable energy power plant. Therefore, the oil shale-fired plant in Jordan will augment its experience base. This is important in order to enhance its credibility ahead of the bidding for Malaysia’s 2000MW coal-powered Track 3B project. Other segments’ contribution still disappointing. In the last quarter, the lower earnings contribution from Power Seraya was partially offset by a better performance from its water utility business in the UK and the narrower losses at YES Wimax broadband operations in Malaysia. Going forward, we expect the broadband subscriber base to hit the breakeven level by the end of this year. However, rising capex for the expansion of YES coverage in Sabah and Sarawak would continue to be a drag on YTL Power’s earnings in the near-term.

Limited upside. Technically, we expect the stock price to continue its rally after it recently breached the resistance level of RM1.68. Buying may continue in the near-term with strong resistance at circa RM1.75-1.77, breaching which the stock may trade as high as RM1.86. However, we note that the RSI is hovering in the overbought territory of above 70 points level. We see a strong support at RM1.65 with immediate support at RM1.68.