YTL Power hosted an analyst briefing recently that was well attended by fund managers and analysts. Key speaker YTL Power Managing Director Dato Yeoh Seok Hong emphasised its existing assets quality and value.
They are backed by strong operating cash flows to anchor dividend payments while debts of each business operation were ring fenced. Wessex Water’s assets are well protected under a high inflation environment, as the UK’s higher inflation will provide future growth for its regulated asset base and revenue.
Recent operating results were affected by accounting anomalies and additional finance costs from index-linked bonds that have no cash impacts. Going forward, Wessex Water’s numbers are likely to improve, as tariffs have been lifted by 9% on average effective April, said RHB Research (RHB) in the recent Malaysia Company Update Report.
“Post YTL Power’s briefing, we feel positive over its earnings sustainability, anchored by better Wessex Water numbers, elevated electricity pool prices in Singapore, and potential maiden contributions from the Jordan plant,” said RHB.
PowerSeraya’s outlook remains bright with an elevated uniform Singapore energy price and locked-in competitive gas contracts.
Recall that the uniform Singapore energy price has spiked since quarter four of calendar year 2021 due to a tighter demand-supply condition. It averaged at SGD259 per megawatt hour between Jan 2023 and Mar 2023.
Despite it still being lower than 2022’s SGD291 per megawatt hour average and Oct 2021’s SGD491 per megawatt hour peak, this is still significantly higher than the SGD85 per megawatt hour 5-year average, from 2016 to 2020.
“Hence, the earnings contributions are set to remain solid in the near term. Given that most electricity contracts are locked in for two years, we think YTL Power is able to continue locking in attractive rates post expiry of the 2-year contracts,” said RHB.
The 45%-owned Jordan plant’s commissioning is now complete, pending final certification. Project internal rate of return was guided at 13-14%. The internal rate of return is the expected compound annual rate of return that will be earned on a project or investment.
The Tanjung Jati coal plant project has been scrapped and all costs incurred are fully impaired. There could be a potential new project to be developed at the site, which relates to other fuel sources.
Despite the telecommunication arm likely to stay loss-making, impairment risks are low. The priority is on solutions provision and establishing internal capabilities for developing green data centres and a digital banking arm. Note that a 3-year timeframe is provided by Bank Negara Malaysia to establish digital banking operations.
