TA Securities Research has called on Ranhill Utilities Bhd investors to reject YTL Power International Bhd’s mandatory takeover offer (MTO) of 99.5 sen given such price tag for the water service provider is lower than its target price of RM1.06/share.

Considering that Ranhill closed at RM1.35/share yesterday (May 28) or 35.7% upside from the MTO price coupled with the very fact that YTL Power intends to maintain Ranhill’s listing status, investors are better off selling the shares in the open market, according to the research house.

“We believe that the MTO price is unfair for Ranhill’s investors as the price is lower than our target price of RM1.06/share,” commented analyst Ong Tze Hern in a power & utilities sector update.

“Nonetheless, we are positive on the acquisition in the long-term as YTL Power could improve Ranhill’s profitability by leveraging its vast experience in the utilities sector.”

For context, YTL Power via its 70%-owned unit SIPP Power Sdn Bhd is in the midst of acquiring 31.4% equity interest in Ranhill from its chairman and chief executive Tan Sri Hamdan Mohamad for 99.5 sen/share or RM405.2 mil cash through direct business transactions (DBT).

The acquisition triggers the MTO threshold of which SIPP Power will extend the MTO to acquire the remaining Ranhill shares that it has yet to own.

Prior to the transaction, YTL Power directly owns a direct 18.9% stake in Ranhill as well as an indirectly 2.9% stake via its 70%-owned SIPP Power. The remaining 30% stake in SIPP Power is owned by SIPP Energy Sdn Bhd which is controlled by former UMNO Kota Tinggi division chief Datuk Daing A Malek Daing A Rahman.

The acquisition will be funded with internally generated funds and is expected to be completed in June 2024. Meanwhile, the MTO is slated for completion by 3Q 2024 with YTL Power intending to maintain Ranhill’s listing status.

From performance perspective, TA Securities further deemed the acquisition is earnings accretive but is not expected to immediately move the needle for YTL Power by contributing merely 0.4% additional earnings for the latter’s FY6/2025-FY6/2026.

“However, by having a controlling stake in Ranhill, YTL Power can further improve Ranhill’s bottom line by leveraging the group’s experience in managing Wessex Water in the UK and Power Seraya in Singapore.,” opined TA Securities Research.

“YTL Power can also gain exposure in large scale solar (LSS) farm and utilise Ranhill’s experience in LSS to build the solar farm for its 500MW green data centre. The potential synergy from the acquisition is immense.”

TA Securities Research nevertheless maintained its “sell” rating on Ranhill with an unchanged target price of RM1.06/share on belief that Ranhill’s share price has moved ahead of its fundamentals.

On the other hand, it also reiterated its “buy” recommendation on YTL Power with an unchanged target price f RM6.35/share on the basis that YTL Power is set to benefit from high demand for AI data centre.

At 10,20am, Ranhill was down 4 sen or 2.96% at RM1.31 with 10.98 million shares traded, thus valuing the company at RM1.7 bil. - May 29, 20234

https://focusmalaysia.my/ta-securities-urges-ranhill-shareholders-to-reject-ytl-powers-unfair-99-5-sen-takeover-offer/