Mayban: YTL Power still a buy
TheEdgeDaily, 30 August 2004
Mayban Securities Research has maintained its buy call on YTL Power International Bhd at RM1.69 on the basis of predictable and steady cash flow, a huge cash hoard and also a strong management team.
Mayban Research placed a fair value of RM3.20 on YTL Power, attaching the industry average price to earnings ratio of nine times to EPS 2005 of 26.6 sen. It is trading at PER 2005 of 6.4 times.
The company reported “an excellent set of results”, with a year-on-year (y-o-y) growth of 7% in turnover to RM3.39 billion, while net profit grew 37.5% to RM613.50 million, it said in a research note on on Aug 27. “Investment in regulated assets is YTL Power’s strategy and we are comfortable with this approach. With strong financial standing, YTL Power may continue its acquisition for more regulated assets.
“We do not discount the possibility of YTL Power participating in Malaysia’s water and sewerage industry. In line with the management’s previous strategy, we expect YTL Power to only participate once the water and sewerage industry is fully regulated,” it added.
YTL Power’s turnover from the power generation division fell 8.6% y-o-y in FY2004, as a result of the expiry of the supplemental power purchase agreement (PPA) signed in January 2001.
Under the supplemental PPA, YTL Power sold an additional 1,400GWh of electricity per annum at a fixed selling price of 10.9 sen/kWh for three years. Since the expiry of the supplementary PPA in December 2003, YTL Power’s electricity sales have reverted to 7,450GWh per annum.
“We are not concerned about the likelihood of a renegotiation of YTL Power’s PPA. On the other hand, the company may lose out should the industry be restructured in a manner that would have benefited YTL Power,” said the research house.
Mayban Research said YTL Power’s FY2005 turnover was expected to fall by 1.9% to RM3.32 billion, reflecting the full-year impact of the expiry of the PPA. “FY2005 net profit is expected to increase by 33.4% to RM818.40 million.”
It had factored in the contribution of RM205 million from the 35%-owned Jawa Power in FY2005. The acquisition is expected to be completed by the fourth quarter.
It said Wessex Water Ltd, the group’s main contributor to turnover and net profit, recently submitted a preferred plan to the Office of Water Services. The plan limits price increases to 12% above inflation. Mayban Research has imputed the 12% increase in its forecasts.