AmResearch maintains Hold on YTL Power
KUALA LUMPUR: AmResearch maintains its Hold on YTL Power International with an unchanged sum-of-parts based fair value of RM1.86 a share. In a note on Monday, AmResearch said YTL has emerged as the frontrunner for Project 3B which involves the construction and operation of a 2,000MW coal-fired power plant.
“The plant, potentially costing RM11bil, is scheduled to commence operation in stages in October 2018 and April 2019,” it said. AmResearch said YTL had proposed for the project to be built in Tanjung Tohor, Johor together with SIPP Power Sdn Bhd, in which the Sultan of Johor is one of the major shareholders. “Based on the evaluation report submitted to the board of the Energy Commission last month, YTL was the preferred bidder give that its notional adjusted tariff of 25.2 sen/kWh was the lowest bid. “The EC is expected to announce the winner of the bid by Jan 20, 2014,” it said.
Assuming that YTL has a 60% equity stake in the project, project IRR of 9%, debt:equity ratio of 80:20 and cost of funding at 6%, AmResearch estimates that Project 3B, if successfully secured by the group, could raise the group’s SOP by 9% to RM2.02/share and provide incremental earnings of RM260mil. “As earnings will only start to partially commence in FY19F, the group will experience a three-year gap in domestic power earnings in FY16F-FY18F. “Hence, we maintain FY14F-FY16F earnings. The stock currently trades at a fair FY14F PE of 13 times, compared to Tenaga’s 12 times. But these valuations are not attractive without a clear dividend policy presently,” it said.