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Tuesday, September 16, 2014

'Hold' on YTL Power


By AmResearch
Hold (maintained)
Fair value RM1.56
THE Economic Times reported that YTL Power was in the advances stages of negotiations with India-based NSL Group to acquire up to 49% stake in NSL Orissa Power and Infratech. NSL Orissa Power is setting up a 1,320MW coal-fired power project in Angul, district of Orissa with an investment of 8,000 crore rupees (US$6.8mil), which is being funded through debt to equity of 70:30.
NSL Infratech is involved in operations and maintenance services for the power plant as well as real estate and infrastructure. The company has acquired land for the thermal power project, obtained approvals from the authorities, and awarded the engineering, procurement and construction contract to Tata Projects.
AmResearch said the full capital expenditure of a 1,320MW coal plant could easily reach US$2.3bil, based on Tenaga Nasional Bhd (TNB) Project 3A’s US$1.7mil per MW.
Based on a 30:70 equity to debt ratio, AmResearch said it expected the 49% equity stake in the plant to cost RM1.1bil, which is well within YTL Power’s funding capability.
AmResearch said it was cautious on this investment given India’s regulatory uncertainties over coal and electricity supply to off-takers.
For example, it said TNB’s combined cycle Liberty Power gas plant in neighbouring Pakistan had encountered fuel supply issues in the past which required significant impairments for its investment.
The research house said there was a strong likelihood that the power purchase agreement for the Paka and Pasir Gudang plants may be extended by a few years, given that Peninsular Malaysia’s power reserve margin may drop below 30% by 2016 if the first generation plants were taken offline.
Nevertheless, AmResearch remained cautious on Yes’ losses given the group’s commitment to expand its services to 10,000 schools in Malaysia under the 1BestariNet project.
It said there was a likelihood that the breakeven level may not be achievable after Yes achieved its targeted subscriber base of one million.
It said the stock currently traded at a fair FY15 forecast PE of 12 times, at the high region of its three-year PE range of 10 times-12 times, with an absence of dividend visibility.

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