KUALA LUMPUR (May 28): The proposed acquisition of a 31.4% stake in Ranhill Utilities Bhd (KL:RANHILL) appeared to be a positive move for YTL Power International Bhd’s (KL:YTLPOWR), according to analysts.

Ranhill, which operates in water and power businesses, is seen to be strategically aligned with YTL Power considering the latter shares similar business operations, albeit at a much larger scale, according to MIDF Research. The research house considered the acquisition "a reasonably good deal for YTL Power".

“We believe the entry of a strong shareholder will pave the way for improved efficiency for Johor water,” said MIDF Research. YTL Power can capitalise on prospects from the Johor-Singapore Special Economic Zone and potential demand from data centre hubs in the state, it noted.

Palm oil, an economical and highly versatile commodity, has provided livelihoods for millions of people, contributed to economic growth and bolstered global food security.

MIDF maintained a “Buy” call on YTL Power with an unchanged target price of RM6.35. However, MIDF said its “Neutral” call on Ranhill with a RM1.07 target price is under review with a downward bias, considering the inflated valuation the stock is currently trading at.

On Tuesday, YTL Power announced to Bursa Malaysia that its 70% subsidiary SIPP Power Sdn Bhd has signed an unconditional share purchase agreement to acquire the block of 31.4% equity interest in Ranhill, which is owned by its major shareholder Tan Sri Hamdan Mohamad and his vehicles - Hamdan Inc (Labuan) Pte Ltd and Hamdan (L) Foundation.

Upon completion, it will raise SIPP Power’s direct stake to 34.32% from 2.9%. Consequently, SIPP Power and YTL Power will collectively own a 53.19% stake in Ranhill, up from 21.77% currently, giving rise to a mandatory general offer of 99.5 sen per share.

However, SIPP Power said it intends to maintain Ranhill’s listing status.

Hong Leong Investment Bank (HLIB) sees the acquisition as a strategic move, allowing YTL Power to expand into Johor’s water utility business by strategically consolidating Ranhill’s operations, which complement its existing business portfolio and derive potential synergies.

"We expect potential synergistic benefits to integrate Ranhill into YTL Power's diversified portfolio of businesses while also leveraging YTL Power's UK Wessex Water expertise," HLIB said.

HLIB maintained a “Buy” rating and target price of RM7.45 for YTL Power.

For Ranhill, MIDF said based on the research house’s sum-of-parts valuation, the stock should be valued at RM1.07, which is a 7.5% premium to YTL Power’s offer price.

“We believe minorities should hold out for a better offer from YTL Power,” said MIDF. "The acquisition consideration for Hamdan's 31.4% block at 99.5 sen by YTL Power is at a steep 37% discount to Ranhill’s last closing price of RM1.57, though we note that market price has gained significantly in the past few months ahead of the deal.”

Ranhill has seen its share price surge over 74% since the beginning of the year, before requesting to have its shares suspended from 9am today, and were last transacted at RM1.57.

Following the announcement, shares of Ranhill fell as much as 14.01%, or 22 sen, prompting Bursa Malaysia to suspend the counter’s intraday short selling (IDSS). Ranhill's IDSS will only be activated on May 29 (Wednesday) at 8.30am, according to the local bourse. 

https://www.theedgemarkets.com/node/713344