KUALA LUMPUR: Malaysian conglomerate YTL group has placed huge bets in neighbouring Singapore over the past one year, having announced three major deals worth a combined S$4.3 billion (RM10.24 billion).
Geographical diversification is deemed pivotal to sustain YTL’s earnings in anticipation of a tougher business landscape at home amid a weaker global economic outlook.
In November 2007, YTL Corp Bhd paid S$435 million for its enbloc purchase of Westwood Apartments, comprising 50 high-rise units at Orchard Boulevard. In October 2008, YTL Corp said it would fork out S$264.62 million to spur its foray into the Singapore real estate investment trust (REIT) market.
Of that, S$202.62 million was spent to acquire a 26% associate stake in Macquarie Prime Real Estate Investment Trust, while the remaining S$62 million was used to secure a 50% interest in Prime REIT Management Holdings Pte Ltd, which manages the property trust.
On Tuesday, YTL Power International announced it was acquiring PowerSeraya Ltd, the second-largest electricity producer in terms of installed capacity in the island-nation, for S$3.6 billion.
Analysts said YTL Power had paid a reasonable price for PowerSeraya. In a note, OSK Research said the purchase price was reasonable by virtue of the age of the acquired entity’s assets compared with those owned by other major power producers in Singapore, namely Senoko Power and Tuas Power.
“When benchmarked against the other two Singaporean power generation companies, the price to be paid seems fair on a price-to-book, and price-to-megawatt (MW) valuation given that the age of PowerSeraya’s assets fall between Senoko’s older assets and Tuas’ newer assets.
“On a price-to-earnings ratio basis, however, the price does seem somewhat of a steal at 16.5 times, versus 28 times for Senoko and 27 times for Tuas,” said OSK Research.
AmResearch Sdn Bhd shares similar views. The research firm said based on PowerSeraya’s S$550 million debt, the purchase price translated to an enterprise value of US$0.8 million per MW which is lower than the price paid for Tuas at US$1.1 million per MW.
At the same time, the acquisition price of PowerSeraya is also lower than the current replacement cost for opened and combined cycle power plants at US$0.9 million per MW and US$1.4 million per MW respectively.
“However, the price is slightly higher than Senoko’s US$0.7 million per MW. Hence, we view the price tag as fair, given that the plants have an estimated average age of over 10 years while the average lifespan of a power plant is 25 years,” said AmResearch, reiterating a buy on YTL Power with a higher target price of RM2.45.
PowerSeraya, with a licensed power generation capacity of 3,100 MW, accounts for about a quarter of Singapore’s licensed power output capacity. The company was granted a 30-year electricity production licence till 2032 by the Energy Market Authority of Singapore.
YTL Power has said the acquisition of PowerSeraya is expected to generate an annual revenue and net profit of about RM6.95 billion and RM76 million, respectively, in the first full financial year (FY) ending June 30, 2010, adding one sen to earnings per share.
In Malaysia, YTL Power owns two power stations — at Paka in Terengganu and Pasir Gudang in Johor — with a combined generation capacity of 1,212MW.
Abroad, it has a 33.5% stake in ElectraNet Pty Ltd, which owns and operates South Australia state’s transmission grid under a 200-year concession, a 35% interest in Indonesia’s PT Jawa Power, which owns a 1,220MW plant, and a 100% stake in PT YTL Jawa Timur, the operations and maintenance company of Jawa Power.
ECM Libra wrote in a note: “We have taken into account the additional income and expenses in our forecasts from FY2009. However, the net impact on our valuation is not significantly higher.” The research firm maintained its fair value of RM2.93 and a buy on YTL Power.
The stock fell 3.6%, or seven sen, to RM1.86 yesterday with 5.26 million shares done.
04-12-2008, by Chong Jin Hun (theedgedaily.com)
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