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MIDF raises target price for YTL Power by 20% to factor in RM3.06b cash from ElectraNet sale

KUALA LUMPUR (April 11): MIDF Research raised its target price (TP) for YTL Power International Bhd (YTLP) by 20% to 96 sen to reflect cash proceeds from the ElectraNet sale.

“We are raising our sum of parts-derived TP for YTLP to 96 sen (from 80 sen previously) as we factor in the RM3.06 billion cash proceeds from YTLP’s recent sale of its 33.5% stake in ElectraNet. As a recap, YTLP disposed of its 33.5% stake in ElectraNet for A$1.03 billion (RM3.06 billion) to existing ElectraNet shareholder (with a 19% stake) Australian Utilities Pty Ltd, a trustee of Australian Utilities Trust,” MIDF Research noted in a report on Monday (April 11).

Against a book value of A$258.2 million, the sale translates into a sizeable gain of RM2.2 billion, it added.

“The value-unlocking through the sale reflects the deep underlying value of YTLP, which is currently trading at about 60% discount to book value — the RM2.2 billion gain on the sale alone is equivalent to around 35% of YTLP’s current market cap. The sale transaction values ElectraNet at a generous enterprise value of 1.6 times its regulated and contracted asset base,” it noted.

Additionally, MIDF Research believes that YTLP is “well positioned to pursue new growth opportunities”.

The sale proceeds turn YTLP into a net cash position of RM1.9b at the holding company level, while group-wide (inclusive of ring-fenced debt at the asset level), net gearing is pared down to 1.55 times from 1.8 times, it noted.

“The proceeds are likely to be redeployed for further value creation. We reckon this may go into the build-up of its data centre capacity, solar renewable energy (RE) capacity, its ongoing Brabazon property development in the UK or potential mergers and acquisitions,” it added.

MIDF Research also noted that its thesis of maintaining its "buy" call on YTLP and raising its TP to 90 sen is primarily centred on: i) Operationalisation of the 554MW Attarat Jordan shale power plant in the second half of the year; ii) recovery of the Singapore power sector driven by gradual reopening of the economy, a reduction in capacity and lower projected reserve margin over the next few years; iii) build-up of RE generation and data centre assets regionally; and iv) the deeply undervalued stake in Wessex Water.

It also pointed out that UK regulated water assets are seeing rapid valuation expansion amid multi-decade high interest rates.

“Wessex Water [is] another deep value asset of YTLP, [which] could fetch an equity value of RM13.7 billion (RM1.68/share), more than double YTLP’s current market cap,” it added.

YTLP shares are currently trading at 76 sen, down 1.5 sen or 1.94% from 77.5 sen at the close last Friday.

http://www.theedgemarkets.com/article/midf-raises-target-price-ytl-power-20-factor-rm306b-cash-electranet-sale

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