Background:
YTL
Power International (YTLPOWR) need not further introduction as it is a FBMKLCI
member and has been long covered by many analysts in Malaysia. To refresh our memory,
YTLPOWR made RM1.19b in FY14 (ending Jun) representing 12% increase YoY. Biggest
earnings contributor is Water & Sewerage (W&S) segment which generated
RM794m PBT or 54% of the Group’s PBT in FY14. Details of W&S division is
listed at the end of this page. Other earnings contributors are: i) Multi
Utilities Business (MUB) with RM494m PBT or 34% of Group’s PBT, ii) Power
Generation with RM185m PBT or 13% of Group’s PBT. Mobile broadband network
division is still making loss at RM170m Loss Before Tax.
Positive surprise
from the recent 10 sen dividend
On
28-Aug-2014, YTLPOWR unexpectedly announced an interim single tier dividend of
10 sen with the ex-date on 29-Oct-2014 and payment date 14-Nov-2014. This is a
major positive surprise as there has been absence of dividend for almost 2
years since 22-Nov-2012. With this dividend of 10 sen, it is likely that the
Company should start its regular dividend payment going forward.
Potential catalyst if its expiring Power Purchase
Agreement is extended
It
has been reported by media that YTLPOWR PPA may be renewed due to potential
shortage of power in Malaysia
over the next few years. Note that YTLPOWR owns a 800MWcombined cycle gas
turbine (CCGT) plant in Paka, Terengganu and
400MW CCGT plant in Pasir Gudang, Johor.
Very attractive dividend yield of 6.4%.
Based on its latest share price of RM1.57, the 10 sen dividend works
out to be 6.4% which is among the highest provided by any counter in FBMKLCI.
We think the dividend is likely to continue in the future due to the very
strong cash flow generated by YTLPOWR.
Theoretical
Target Price of RM2.00 sen based on 5% target yield
This
means 27% upside and 6% dividend, hence overall 33% total return. The 5% yield
is conservative as it is higher than FBMKLCI yield around 3.0% to 3.5% and is
usually the minimum required by investors for stocks perceived as dividend
stock.
Details of W&S segment
(from YTL Power website)
Source: http://www.ytlpowerinternational.com/our_business/water-sewserv.asp?catName=our_business
Wessex Water, a wholly-owned subsidiary of YTL Power
International, is a regional water and wastewater services company in the UK.
Wessex Water serves an area
encompassing 10,000 square kilometres in the south west of England, including
Dorset, Somerset, Bristol, most of Wiltshire and parts of Gloucestershire and
Hampshire. It supplies about 350 million litres of water to 1.3 million
customers, and treats 490 million litres of sewage from 2.7 million customers
daily.
Wessex Water is recognised by the UK
water industry regulator, Ofwat, as one of the most efficient water and
sewerage companies in England
and Wales.
It has also earned distinctions such as The Queen's Awards for Enterprise 2008
in sustainable development, as well as an Excellent Environmental Assessment
Award and the UK
Government's award for Customer Service Excellence.
