https://klse.i3investor.com/web/blog/detail/dragon328/2023-05-26-story-h-269658206-YTL_YTL_Power_Croaching_Tiger_Hidden_Dragon

An update note based on the latest quarterly result

https://klse.i3investor.com/web/blog/detail/dragon328/2023-05-26-story-h-269658206-YTL_YTL_Power_Croaching_Tiger_Hidden_Dragon

An update on YTL based on its latest quarterly result

Prospects are getting brighter in coming quarters on following grounds:
1) Rebounds in tourists to Genting Highlands with more China and Singaporeans able to travel across and more rides added at Genting SkyWorld
2) Continuous earnings rebound from Resorts World New York City
3) Improving earnings from Resorts World Bimini after collaboration with international cruise operators to increase the port calls to the island
4) reduced losses in Empire Resorts after mobile sports betting is ramped up
5) the imminent disposal of Miami land for US$1.225 billion which will reduce interest expenses by US$61 million a year
6) the potential of Genm bagging a full casino license in New York
7) Continued strengthening of US dollars that make US earnings contribution stronger in ringgit terms
8) potential monetisation or disposal of other assets under Genm, eg. the resorts and hotel in Bimini, the other 2 parcels of land and hotel in Miami and some UK casinos

Operating cashflows are decent at RM363 million in 1Q2023, annualised to RM1,452 million or 24.5 sen per share.

Capex was high at RM195 million in 1Q2023, expect it to come down slightly in following quarters.

The contribution from USA & Bahamas is encouraging with adjusted EBITDA of US$30-33 million in Q42022 and Q12023. That will annualise to over US$120 million a year, higher than my earlier projection of US$100 million.

The jackpot to hit is to get a full casino license in New York.

Genm registered commendable results for 1Q2023 with adjusted EBITDA of RM593 million, up 43% y-on-y and up 25% q-on-q.

Finance costs reduced by RM21 million or 12% y-on-y due to lower total borrowings by RM300 million.

Share of results from associates worsened by RM18 million y-on-y due to higher effective stakes of 77% in Empire Resorts. Empire Resorts registered a pretax loss of US$15 million in this quarter, annualised to US$60 million which is larger than 2022 actual loss of US$34 million. Added back with non-cash depreciation charges of US$41.1 million and interest expenses of US$67.5 million a year, EBITDA will be US$48.6 million positive. Allowing for interest expenses of US$67.5m, cash burn will be US$18.9 million a year for Empire Resorts. To me this is still manageable, especially the management is ramping up efforts to roll our mobile sports betting which the management expected to add some US$26 million of EBITDA in 2023 and US$40 million of EBITDA in 2024. That will turn it to cashflows positive.

If we factor in some of the earnings contribution from the above 8 factors, YTLP earnings may go up 50% more by next year and double or triple up in 2-3 years, with dividends going up to 20 sen to 25 sen every year, which will support share price to RM3.00-4.00 per share.

I will load up more for sure at below RM1.20 now.

myloh123, yes we have been too conservative in our earnings projection after looking at this Q3 earnings. One quarter it makes net profit of RM507 million, one year YTLP will make net profit of RM2.03 billion or EPS of 25.0 sen.

Yes I agree that YTLP should trade to at least RM2.00 a share even at a low PER of 8x.

Not to forget that net profit will improve further in coming quarters on the following reasons:
1) Current heat wave that spurs up electricity demand, hence pushing up electricity prices
2) Strong Singapore dollars to over RM3.40 will make PowerSeraya earnings contribution to increase further in ringgit terms
3) Maiden contribution from Jordan power in next quarter or following
4) Improved earnings from Wessex Waters from Q4 onwards after water tariff hikes
5) New earnings contribution from green data centres from Q1 2024
6) New earnings contribution from digital bank venture from Q2 2024
7) Potential more green data centre jobs to be secured in coming quarters
8) Potential power export to Singapore in next 5 years after Malaysia government lifted up the ban of RE export earlier this month

Dividend of 2.5 sen is declared for this Q3, higher than the 2.0 sen declared last year.

YTLPower typically declares a higher final dividend in Q4 ended June. Let's wait for good news in Q4 in August then, expect higher than last year as well.

Operating cashflows for the 9 months ended Mar 2023 amount to RM2,159 million (before capex), expect another RM700 million more cash flows coming in the final quarter. This can easily fund a final dividend of 4.5 sen or a dividend payout of RM365 million.

Investment Holding Activities registered a pretax loss of RM45.6 million in the absence of any disposal gain, offset by higher interest income.

This also means that the green data centre has yet to make any contribution to the group profit. This division will start making profit contribution from Q1 2024.

The telecommunications division is disappointing with pretax loss doubling to RM106 million in this Q3 FY2023 from RM52m loss in Q2 FY2023. There is not much explanation given, but I suspect its Yes 5G has not gathered sufficient subscribers yet. I am not sure what other costs besides device costs that have been booked in, maybe some cost of subscribing to DNB network.

Wessex Waters registered pretax loss of RM47.2 million in this Q3 FY2022, that is due to interest accruals on index-link bonds, a non-cash impact of RM75 million. Excluding this, Wessex Waters would have made a pretax profit of RM28 million.

Wessex Waters has since revised up its water tariffs from 1st April 2023, and I see this adjustment will add easily RM100 million to its revenue and pretax profit in Q4 FY2023 onwards.

So from next quarter Q4 FY2023 onwards, I see Wessex to contribute normalised pretax profit of RM130m to RM150 million every quarter to YTLPower.

@myloh123, I almost fell off my chair when I saw the net profit figure of RM507 million.

Then when I looked into the detailed breakdown of profits, I also pengsan.

My god, the Power Generation division alone generated Pretax profit of RM806 million. That's crazy. Even after I deduct off associates' contribution (from Jawa Power Indonesia), still pretax profit came to RM760 million.

I suspect some profit might have come from Jordan power project, but I did not see anywhere in the result note that mentioned about Jordan power project. Furthermore, any contribution from Jordan Power will have come under Share of Profits of Investments accounted for using the Equity method, but this Share of Profits amount (RM46.7m) shows no visible improvement in this quarter, indicating that the earnings contribution from Jordan Power was not significant in this Q3 yet.

This means PowerSeraya alone contributed profit before tax of RM760 million in this Q3, that is about SG$230 million of PBT. You can see the taxation rate for this quarter was about 17%, which coincides with Singapore corporate tax rate.

For PowerSeraya to achieve PBT of SG$230 million in a quarter, it is possible. Back-of-the-envelop calculations show that PowerSeraya could have achieved gross non-fuel margin of SG$80/MWh at almost 70% running factor of all its efficient gas plants including the newly acquired Hyflux gas units. The last time Singapore wholesale market registered such a good gross non-fuel margin was during 2008-2013 when supply was tight.

We have seen a few occasions when the wholesale market electricity prices shot through the roof of above SG$1000/MWh during peak daytime in past few months, and PowerSeraya is in a very good position to capture such occasions by running up its open-cycled gas turbines or oil-fired machines to supply to the peak rates. On those occasions, gross non-fuel margin may hit well above S$300/MWh.

Furthermore, we can still expect higher quarterly profits going forward as Wessex Waters adjusts up its water tariffs from 1st April 2023, even higher earnings contribution from PowerSeraya due to heat wave and tight electricity supply, higher cement division contribution after costs drop off, higher hotels and shopping malls earnings contribution from higher tourism activities, and prospects of HSR.

Net profit of RM414 million or EPS of 3.78 sen annualised to 15.1 sen. A PER of 10x will rate it at RM1.51 per share.

The main earnings driver was YTL Power, though the hotel division also booked in huge improvements in profit before tax to RM58 million in Q3 FY2023 from a loss of RM32 million in Q3 FY2022. The cement division was a little below expectation due to higher than expected costs locked in for the quarter.

YTL Q3 result was fantastic, driven by the Utilities (YTLPower) division.

Pretax profit of RM815.7 million is the highest quarterly profit achieved in years, and this excellent result was achieved without any extraordinary item. (Note that Q3 FY2022 was boosted by an one-off disposal gain from Electranet).

@10bagger10, both YTL and YTLP are still undervalued.

YTLP offers higher dividend yields and more secured earnings growth in foreseeable future, while YTL offers potential higher upside potential from its cement division and HSR angle in near future and much higher asset value appreciation from its landbank.

You will need to consider your investment horizon to see which one suits you better.

@tonywong8, thanks for the info. Due to the extremely hot weather, it is normal for power demand to surge up in Singapore, especially as oil & gas prices have softened.

Just imagine, when crude oil prices hit above US$100/bbl, electricity prices in Singapore could have hit SG$400/MWh or higher on occassions. Now households there are enjoying electricity prices 30% cheaper than recent peaks, so it encourages higher electricity consumption.

As for Yes 5G business, I am not very optimistic on its potential earnings contribution. I just hope for this division to break even and not drag down the whole group performance.

As for its equity subscription to DNB, it is a separate business decision. If DNB can achieve 80% nationwide coverage, it will be profitable and YTLP's equity investment in DNB will not go down to the drain. Things are quite fluid at the moment and I expect changes along the way.

@Alex Chua, there will be competition for sure in data centre space, whether it is in the turnkey EPCC role, or solar panel supplier and installer, or EPCC-owner role.

It is easy to be a solar panel supplier or installer, there are plenty in Malaysia, some are even listed companies. To be an EPCC for green data centre, one needs to have construction experience and working capital, again there are plenty in Malaysia who can be an EPCC for green data centre.

What sets it apart for YTLP is its role as the EPCC-owner of green data centre, which requires deep pockets to fund the construction of green data centre and gets the return over a concession period. Also it needs expertise in construction, solar power generation and maintenance, contracting, financing and wide contacts with global data centre clients. You don't get many local players who have all such expertise and financial power.

As for cost overruns due to high solar panel prices, I can assure you that YTLP has decades of experience in dealing with such cost issues in large infrastructure projects and they know how to hedge all costs properly in order to lock in the required profit margin. Another note is that solar power part only forms about 10% of the overall costs for building green data centres, the bulk of the costs are actually related to data centre equipment.

And the 1st phase of the green data centre job at the Kulai site by YTLP has achieved financial closure, meaning that banks have been satisfied with the revenue model, costing and returns of the project before they agreed to lend money to fund almost 80% of the project costs. For such a big project of about RM1.5 billion, banks are usually very careful with the project economics and must be happy with the debt service ability of the project before financial closure.

@Apple888, RM1.30 is just a matter of time. I would expect it to be tested within this year

The gas price coming off peak will reduce revenue of PowerSeraya, but may not reduce the profit. As I know, most power generation companies in Singapore tend to hedge almost 100% of fuel costs to protect the profit margin. They sell electricity contracts to customers taking into account the respective hedged fuel costs, so they always earn a "fixed" or "preset" non-fuel margin on top of fuel costs irrespective of fuel cost price movements.

Lower fuel / gas prices will make the overall electricity prices absolutely lower so encourage more uptake, indirectly helping power generation companies to earn more topline and bottomline.

Exactly how much MCement can earn this quarter, I don't know. But looking at the parameters, I expect MCement to report a record quarterly EBITDA and profit.

Hume made how much profit in its latest qtr? RM15m or so? MCement will easily beat that by 7x.

It is indeed a weak set of results for Q3 FY2023 that has caused insiders to have sold down BJFood in past few weeks from over RM1.00 to now RM0.825.

The Q3 quarterly result is no doubt disappointing but I feel that the share price drop over past few weeks has already reflected the weaker result. After all, the cumulative 9 months of FY2023 pretax profit is still 2% higher than 9M FY2022.

I am confident that the management will be able to adjust product pricing and control costs to bring back up the pretax margin in coming quarters.

As a rule of thumb, every 10% increase in MCement revenue from current level will add almost RM400 million in the topline and over RM200 million of EBITDA and operating cashflows to MCement every year.

Exactly, YTL cement division will be the biggest winner out of the HSR race as every construction player will need tonnes of cement. MCement has over 66% market share of the cement market in West Malaysia, and has spare capacity to ramp up supply when demand comes in

Right, HSR should be coming pretty soon, and may be much larger than before with possible extension from KL north to Penang and Thailand. So the pie is much bigger now than before and should be big enough for each big local construction boys like YTL, Gamuda, IJM and Berjaya group to each get a big slice of it.

Construction order book of YTL Corp is boosted up by easily RM15 billion for building green data centres for YTLP over next few years, and another few billion ringgit of order book for building data storage centre and warehouses for Shopee.

But the biggest jackpot is bagging a portion of KL_Singapore HSR which may be worth easily RM20 billion

YTL re-rating factors are immediate - explosive cement division earnings and strong rebounds in hotel & shopping mall businesses

YTLPower re-rating catalysts are gradual and certain in coming quarters

The differences now compared to last August are that bulk cement prices are above RM380/MT and coal prices have dropped by half since Jan 2023

https://klse.i3investor.com/web/blog/detail/dragon328/2022-08-29-story-h1628813084-YTL_Corp_4QFY2022_Continuous_Improvements_in_Utilities_Hospitality_and_

Read this article again to gauge how much earnings MCement can make in this upcoming Q3

The differences now compared to last August are that bulk cement prices are above RM380/MT and coal prices have dropped by half since Jan 2023

https://klse.i3investor.com/web/blog/detail/dragon328/2022-08-29-story-h1628813084-YTL_Corp_4QFY2022_Continuous_Improvements_in_Utilities_Hospitality_and_

Read this article again to gauge how much profit MCement can make in this upcoming Q3

GenS Q1 2023 result was good against last year Q1, but it was lower than Q4 2022 and market expectation.

Main reasons for the weak result were unfavourable VIP win rates and limited airlines capacity to bring in mass market visitors to Singapore (hence high air ticket prices).

As statistics shows, visitors from China to Singapore in May only reached 51% of May 2019 level, so there is plenty of room for this to improve in coming months.

Genting Singapore Q1 EBITDA is weaker than Q4 2022 mainly because of normalisation of VIP win rate and the fact that Q1 is seasonally the weakest quarter for non gaming revenue.

Furthermore, the arrival of Chinese tourists in Q1 was affected by low airline seat capacity (and hence high air ticket prices). Based on latest data, the airline seat capacity from China to Singapore in May 2023 only reached 51% of that of May 2019, so there is still a lot of room for the number of China tourists to Singapore to increase in coming months.

RE is not subsidised in Malaysia, but the normal household electricity tariffs are heavily subsidized by the government.

If you look at your household TNB electricity bill, you will see a sentence at the bottom of the bill saying that the true electricity bill without subsidy should be how much and the government subsidy for your monthly bill is how much. Generally our government subsidizes about 45% of our household electricity bill.

This is done through fuel cost subsidy mechanism between the government and TNB. TNB electricity tariffs are calculated based on certain ceiling price of fuel gas (fuel oil) and coal price, beyond which the fuel costs are borned by the government, so that our electricity tariffs can be fixed at such low tariffs of 21.8 sen/kWh to 51.5 sen/kWh.

The government recently took away such subsidy for large commercial and industrial customers by having TNB impose additional 20 sen/kWh of surcharge. This effectively reduces government subsidies by half.

Traditional power generation by natural gas at current crude oil prices of around US$80/bbl may cost higher than 40 sen/kWh. In comparison, solar power generation can be profitable at 21 sen/kWh as demonstrated by the winning tariffs in recent LSS4 tender.

As for catalyst, there are plenty coming:
1) a potential higher interim dividend in upcoming 3Q result
2) continued strong earnings contribution from PowerSeraya
3) Maiden earnings contribution from Jordan power plant in Q3
4) higher earnings contribution from construction of green data centre at Kulai
5) potential clinching of more green data centre jobs
6) higher earnings from Wessex from Q4 after water tariff hikes
7) financial closing for the other 200MW of data centre jobs

There is no reason for EPF to continue selling as YTLP prospects are looking better and PM is urging EPF to raise proportion of local investments to 70% from 66%. That should shift about RM40 billion of investments to local markets and about RM24 billion to Bursa stock market.

BJFood has opened 17 new Starbucks stores and 2 new Kenny Rogers stores in 1H FY2023, on track for a total new opening of 35 Starbucks stores and 5 Kenny Rogers stores in FY2023.

BJFood has incurred capex of RM34.3 million in 1H FY2023, so it may incur another capex of some RM38 million in 2H FY2023 if it does open another 18 new Starbucks and 3 new KR stores as planned.

So total capex for FY2023 may come to RM72 million, a lot lower than estimates of RM80m - RM108m by analysts.

BJFood operating cashflows were strong at RM106.2 million in 1H FY2023, annualised to RM212.4 million. Minus off anticipated capex of RM72.2 million, BJFood will have free cashflows of RM140.2 million or 7.2 sen per share.

This can easily support a total dividend payout of 5.0 sen, yielding 6.1% at current share price.
BJFood will still have some RM42 million to pare down debts after paying out 5.0 sen dividend in FY2023.

I suspect the quarterly result may be weak. Q3 ended March is seasonally weaker than Q2, furthermore BJFood earnings are pressured by higher material costs and higher labour costs. I hope it can maintain an EBITDA margin of around 30%.

But interest expenses will be lowered as BJFood pared down net debts by RM57.5 million in 1H FY2023.

The Ambank call warrant expires on 2 June, still 3 weeks away. Usually the call warrant issuer does not suppress the mother share price so early, some more if BJFood quarterly result to be released in next 2 weeks is good, then the warrant issuer will be left with no more mother shares to sell in the last few days before expiry.

What may be the reasons behind the share price slump of BJFood in past 2 weeks?

Weak quarterly result? or really call warrant issuer dumping the mother shares ahead of the expiry of call warrants?

https://www.thestar.com.my/business/business-news/2023/05/11/new-re-policy-updates-a-boon-to-local-players

My positive view on YTLP benefiting from the RE export ban lift is shared by MIDF

TM is the latest to pull out from equity subscription to DNB, expect YTLP to follow.

Then the whole DNB proposition will fall off before it starts, and the government and DNB and industry players will need to come to the drawing board again.

Things will not move then

@observatory, it may be time to relook at BJFood after its share price has corrected almost 30% from recent peak.

@observatory, the issues around DNB and the second network providers are very murky at the moment. If CelcomDigi is allowed to terminate their equity subscription to DNB, YTLPower may also be allowed to walk away from the deal if more details come out to make DNB a non-viable entity. Eventually DNB will be left with the government as the only shareholder with all private 5G providers joining the second network if it is cheaper with Huawei.

What you said is correct on the burden on DNB to cover 80% of areas including rural area. Naturally the second network provider will just focus on urban cities if given the choice. But I don't think the government is so stxpid in allowing that to happen. I expect the government to make sure an equal playing ground for DNB and the second network provider to ensure both can sustain as viable entities, otherwise it would defeat the purpose of allowing a second network in just to kill off DNB.

The switching from SWN to dual networks once DNS achieves 80% coverage is not expected to cause any significant impact to YES, as I do not expect the 2nd network provider will offer bandwidth rates much cheaper than the incumbent.

In any event, YES is not expected to make much contribution to YTL profit, I only hope for it to break even and stop bleeding once it can get about 1.2 to 1.5 million 5G subscribers

Even if there will be more RE available in Singapore once their power import program kicks in some 2-3 years later, I do not expect this new RE import will enable more green data centres to be set up in Singapore in a big way for 2 reasons:
1) any RE power to be imported by Singapore will definitely be more expensive than RE produced in Malaysia, as there will be wheeling chargers to be imposed by Tenaga for power transmission and other charges to be imposed by Singapore side especially the EMA for network charges and wholesale market related charges. Furthermore, any RE exporter from Malaysia or Batam to Singapore will try to benchmark their RE power tariff at a small discount to the existing electricity tariff in Singapore which is about SGD300/MWh or about 99 sen/kWh to maximise profits. Even a discount of 30% will result in a RE import price of 70 sen/kWh which is still 100% higher than prevailing tariff in Malaysia
2) land is scarce in Singapore so any land required for setting up data centres in Singapore will be a lot more expensive than that in Malaysia

https://klse.i3investor.com/web/blog/detail/ceomorningbrief/2023-05-10-story-h-271415877-Govt_Lifts_RE_Export_Ban_Details_Yet_to_be_Ironed_Out

This is good news which paves the way for YTLPower to participate in the export of RE power to Singapore in next 2-3 years