YTL Corp: Unit gets 34-month power supply extension, fails to cheer investors

YTL Corp: Unit gets 34-month power supply extension, fails to cheer investors

KUALA LUMPUR (NewsRise) — YTL Power International Bhd secured a 34-month extension to supply electricity from one of its power plants to Malaysia’s main power grid, but the potential earnings from the deal failed to cheer investors, wary of its cash-bleeding telecommunications business.

    The extension comes after a 21-year power supply agreement expired in September for its gas-fired Paka plant in the eastern Malaysian state of Terengganu. YTL Power, 52% owned by the resort-to-rail conglomerate YTL Corp, said Thursday the agreement will be effective 1 March, 2016.

    Shares of YTL Power opened unchanged Friday on the Kuala Lumpur stock exchange while the country’s benchmark FTSE Bursa Malaysia KLCI started the day with 0.6% gain. The stock was flat at 1.55 ringgit at midday break while the KLCI was up 1%.

   YTL Power didn’t disclose any financial details in Thursday’s stock exchange filing, and did not immediately respond to request for comment.

   However, Kenanga Investment Bank analyst Teh Kian Yeong estimates that Thursday’s extension will help YTL Power generate 36 million ringgit in pre-tax profit annually on the back of 387 million ringgit revenue. The deal prompted Kenanga to raise its net profit estimate for YTL Power, which also owns water assets in the U.K., and operates wireless broadband in Malaysia, by 0.9% for fiscal year 2016 and 2.6% for fiscal 2017 to 990 million ringgit and 1.05 billion ringgit respectively.

   YTL’s net profit slumped 25% to 901.2 million ringgit in the fiscal year ended June 2015, mainly due to lower sales from its multi-utilities business and mounting loss at its mobile broadband business.

    Apart from the Paka plant, YTL Power operates another facility in the southern state of Johor supplying power to state-controlled Tenaga Nasional, which operates the country’s main electricity grid. That agreement too expired in September with that of the Paka plant.

    “We believe that YTL Power’s Pasir Gudang did not receive an extension,” said AmResearch analyst Max Koh. “YTL Power’s earnings will continue to be mainly driven by its water and sewerage division”, which accounted for 73% of its pre-tax profit last fiscal year, he added.

    With the extension being “typically less lucrative” and its Yes mobile broadband still in the red, Kenanga’s Teh said YTL Power’s earnings would be largely driven by its offshore businesses.

    “Thus, the sharp ringgit depreciation of late, works in its favour,” he said. A 5% fall in the ringgit against the U.S. dollar could result in a 4.4% rise in fiscal 2016’s earnings, Teh estimates.

    The Malaysian ringgit has shed 14% of its value against the U.S. dollar so far this year in part due to collapse in crude oil prices and political scandal involving a state investment company.

    Still, “the stock lacks near-term rerating catalysts,” said AllianceDBS Research analyst He Wei Quah, who kept a Hold rating with an unchanged 12-month target price of 1.60 ringgit.

YTL Corp: Unit gets 34-month power supply extension, fails to cheer investors