POSITIVE on its disposal of ElectraNet for A$1.03 bil (RM3.06 bil), RHB Research has upgraded YTL Power International Bhd to “buy” (from “neutral” previously) with an unchanged target price of 68 sen on the back of value unlocking to realise its mature investment.
Nevertheless, the research house reduced its FY2022-2024F earnings estimates by 1-8% in the absence of ElectraNet’s earnings despite YTL Power standing to record a one-off disposal gain of RM2.2 bil from the transaction.
“Note that we have yet to factor in the gains on disposal (27 sen/share) in our valuations,” justified analyst Sean Lim in a company update.
“YTL Power’s potential new investment plans are still unknown. Downside risks to our call include weaker-than-expected plant performance and wider losses from its telecommunications arm (YES).”
Yesterday (Feb 8), YTL Power entered into a share purchase agreement with Australian Utilities Pty Ltd (AUP) as a trustee of Australian Utilities Trust to dispose its entire 33.5% equity stake in ElectraNet and its corresponding shareholder loan notes for A$1.03 bil.
Such sale value represents four times YTL Power’s FY2021 price-to-book value (P/BV) or a A$767.8 mil (RM2.2 bil) premium over its FY2021 net value of A$258.2 mil.
ElectraNet operates the high voltage electricity transmission system throughout South Australia under a 200-year lease, transmitting power from regional generators and interstate sources over long distances to metropolitan and regional areas including large, directly connected industrial customers.
In addition to its regulated activities, ElectraNet is the owner and operator of an extensive unregulated, contracted portfolio of connection and transmission assets. It generated a net profit of A$16.4-A$24 mil for YTL Power in FY2019-2021. The transaction is expected to be completed by 4Q FY2022.
With RM2.72 bil cash in hand, Kenanga Research expects YTL Power to be on a look out for new investment opportunities.
“In the past, the YTL Group has always expanded during economy downturn,” observed analyst Teh Kian Yeong. “For now, YTL Power is still awaiting the completion of Tuaspring acquisition in Singapore while COVID-19 has affected the commercial operation date of Attarat Power Plant in Jordan with PT Jati of Indonesia pending financial close.”
Going forward, Kenanga Research remains positive on YTL Power given the turnaround in PowerSeraya while its YES network is expected to see improving results from better economies of scale from higher subscriber base.
“Meanwhile, we keep our forecast unchanged (“outperform” with target price of 89 sen) as the expected disposal gain is one-off and will not affect our core earnings forecasts,” added the research house.
At 10.51am, YTL Power was up 6 sen or 10% to 66 sen with 9.68 million shares traded, thus valuing the company at RM5.38 bil. – Feb 9, 2022
