for those interested in knowing more about the power business in Singapore, can read this at your leisure

https://klse.i3investor.com/web/blog/detail/dragon328/2022-12-06-story-h-303952239-YTL_Power_the_Rising_Power_in_Singapore

for those interested in knowing more about YTL Power business in Singapore

https://klse.i3investor.com/web/blog/detail/dragon328/2022-12-06-story-h-303952239-YTL_Power_the_Rising_Power_in_Singapore

for those interested in knowing more about YTL power business

https://klse.i3investor.com/web/blog/detail/dragon328/2022-12-06-story-h-303952239-YTL_Power_the_Rising_Power_in_Singapore

for those interested in knowing more about the power business

https://klse.i3investor.com/web/blog/detail/dragon328/2022-12-06-story-h-303952239-YTL_Power_the_Rising_Power_in_Singapore

https://klse.i3investor.com/web/blog/detail/dragon328/2022-12-06-story-h-303952239-YTL_Power_the_Rising_Power_in_Singapore

For your leisure read

@10bagger10, as I estimated before, YTL Power had a net debt of RM0.8 billion at the holding level after deducting off those debts ring-fenced at subsidiary levels (est. RM12.8bn in Wessex, RM5.4 bn in PowerSeraya, RM1.5 bn at Attarat Power).

After the disposal of Electranet, YTLPI has received about RM2.0 billion of cash and hence has turned into a net cash position at the holding company level with net cash of about RM1.2 billion, based on my own estimation.

@Observatory, you are probably right that Wellcall may have fully impaired its investment in the JV with Trelleborg, which is a disappointment.

The good thing is that the amount of investment is not big.

Agree that Wellcall's growth will be tepid in near term, as the JV does not take off.

Will need to wait for other JV or breakthrough in technology for the next quantum leap in growth

I have over-estimated the positive effect of weak ringgit and lower input costs.

Apparently the management chose to pass on the benefits of lower input costs and weaker ringgit to the customers in order to retain long term customers.

Earnings would have increased by 4% y-on-y if not for a one-off impairment loss. Good thing is this impairment is non cash, with operating cashflows remain strong at RM38.9 million for the year, and net cash holding of RM62 million with no debt.

profit taking today from last week gains, volume not too big. Should find good support towards 1.60

I think the last minute buy up was by a foreign fund, the same happened to MRDIY

YTL Power will give you higher dividend yield in near term, which may be as high as 10% from FY2024, as its PowerSeraya multi-utilities business is already reporting exponential growth in earnings and strong cashflows.

Next for YTLPower will be for Wessex to report normalised earnings from Q4FY2023 and for its green data centre to start contributing meaningful earnings from Jan 2024.

@10bagger10, I am no sifu, just a retail investor who spends more time in studying these companies' businesses and financials.

To me, YTL Corp is more undervalued in the longer term as it owns stakes in YTL Power, YTL REIT, Singapore Starhill REIT, the largest tract of urban land in KL Sentul, the largest tract of land in Japan Niseko, the largest cement company in Malaysia with dominant 67% market share. But some of these assets take longer time to realise their potential, eg. Niseko land and Sentul land. The immediate catalysts are expanding earnings from YTL Power and MCement.

@xiaochen, I thought Hong Leong analyst only projected net profit of RM545 million and dividend of 4.5 sen for FY2023? It is from its report dd 25 Nov 2022.

Is there an updated report on 29 Nov? Pls share

I think the management will be very generous in dividend payout from FY2024, it should be over 70% payout, or at least 7.7 sen dividend from FY2024.

In fact, operating cashflows will be stronger than the projected RM900m net profit as we add back depreciation charges, but we need to set aside RM750m - 900m capex for each year mainly for the development of green data centre and solar farm installation, so free cashflows may come back to RM900-1,000 million.

Due to higher customer footfall and higher Average Spend Per Customer, the convenience store segment registered an impressive Same-Store-Sales-Growth (SSSG) of 58.7%, pushing Q3 revenue higher by 62.7% and gross profit higher by 75.9% to RM214.8 million.

These set of excellent numbers speak loud and clearly show that the company is on the right track for exponential earnings growth.

No of Caring outlets increased by 29 to 212 stores and no of 7-Cafe increased by 21 to 52 outlets in the quarter. Total 7-11 stores registered a net increase of 41 to 2,446.

I expect SEM will double the effort to open more 7-Cafe in Q4 to bring total to 100 as planned.

Operating cashflows were strong at RM275 million for 9 months ended 30 Sept 2022, annualised to RM366 million. Capex amounted to RM59.9 million for the 9 months, within expectation.
Annual free cash flows may amount to RM366m - RM80m = RM286 million or 23 sen per share.

result is good, though the pharmacy segment still registered low margin.

Q3 Gross profit was steady at RM275.7 million with healthy margin of 28%. High operating expenses and abnormally high taxation rate dragged net profit to RM16 million which is 79% higher than last year.

The Star article reported that Wessex would report higher revenue of RM257 million in 2023, that would flow directly into the bottom line.

YTLPI reported a tiny earnings contribution of RM20m pretax profit from Wessex in its Q3FY2023. Imagine that from Q4FY2023 Wessex shall report RM257m/4 = RM64 million of extra profit, quarterly PBT contribution from Wessex shall increase back to the "normalised" RM80-90 million per quarter.

Add the RM289m PBT contribution from PowerSeraya, PBT shall top RM300m per quarter if we allow continued RM70m loss for the telco business. Annualised pretax will come to RM1.2 billion and net profit may come to RM900 million or EPS of 11.0 sen

Then from Q3FY2024 onwards, we shall see maiden contribution from the 100MW green power export to Singapore (for 2 years) and the first green data centre park in Kulai

Yes xiaochen, we can certainly look forward to at least 7.0 sen dividend from FY2024.

This is after Wessex water tariffs start to reflect the higher inflation and higher interest rates from 4QFY2023 onwards, and PowerSeraya continues reporting strong earnings due to tight supply market in Singapore.

@xiaochen, agree with you that YTLPI has been valued at about 7% dividend yield, but it has traded towards 5% yield at some times when the share price was almost RM2.00 when dividend was 10 sen.

I expect this to happen again from FY2024.

I do hope that the Jordan Attarat Power can start commercial operation soon, but I have no news on the arbitration case

Operating cashflows amounted to about RM494 million for this Q1, minus capex RM383m, there were still positive free cashflows of some RM111 million per quarter or RM444 million per year or 5.4 sen per share.

Operating cashflows should increase in following quarters as PowerSeraya reports stronger earnings and Wessex enjoys higher water tariffs from Q4FY2023, I think.

So I think YTLPI still has capacity to declare dividend of 5.0 sen min for FY2023.

YTL Power had cash holdings of RM7.4 bn as of 30 Sept 2022, so net debts amounted to RM28bn - RM7.4bn = RM20.6 bn.

An estimated debt of RM12.2 bn sat in Wessex, RM7.0 bn in PowerSeraya, RM1.5 bn in Jordan Power, so net debt in YTL Power amounted to RM20.6b - 12.2 - 7.0 - 1.5 = -RM0.1 bn or a nett cash position of RM100 million.

Contribution from PowerSeraya is encouraging, and there was no big negative surprise from Wessex with a small net profit.

On interest expenses, I agree with Observatory that this is sounding little alarm as it went up from RM240m last year quarter to RM332m in this Q1FY2023.

I see that total borrowings remained about RM28 billion as of 30 Sept 2022 while cash holdings increased slightly from last year. Most of these borrowings (estimated 2,315 million pounds or RM12.3 billion) sit at Wessex Waters level. We all know that the interest rates in the UK has gone up a lot recently to 3.0% in Nov from 0.2% last Nov. A 2.8% increase in interest rates will have resulted in RM12.2 bn x 2.8% /4 = RM85 million of increase in interest rate expenses. The rest of the interest expense increase was due to small rise in PowerSeraya.

A good thing is that interest rate hikes in the US and UK are set to slow down going forward.

The increase in interest rates will be compensated by higher water tariffs from next regulatory year from Apr 2023, so Wessex Waters just have to live with high interest expenses for next few months.

result should be good as its pharmacy segment profit margin is expected to normalise to 4%-6%, from just 3% in 2Q

I expect good earnings contribution from PowerSeraya but am wary of any negative surprise from Wessex

The cancellation of Tanjung Jati A project is well expected as I explained earlier, as it is now difficult to get international financing to support new coal-fired power plant project. I think YTLP has already made some provisions in the June qtrly result to write off some development costs related to this TJ project.

They are making some little noise just to hope for a lower tariff from APCO, but they have no leverage nor bargaining power as the alternative is to use imported gas or oil which are expensive. Gas supply there is not reliable as the main gas supply pipeline is often sabotaged

It certainly makes business sense for Nepco to get electrical power from APCO as it is billed in local currency and at fixed rates which are lower than power generated with imported fuel at elevated prices

@xiaochen, looking at the amount of electrical energy purchased (183.5 GWh), I think it was just some commissioning or testing energy. The Jordan plant has not yet declared commercial operation.

The major shareholder did have controversial moves in the past, just like the dramatic rise in SEM share price in 3 weeks pushed up by company share buyback then a collapse in share price in 2 days. But I think fundamentals will prevail as long as the business model is strong and operating cashflows are strong

pump & dump is over, election will be over

It will be down to fundamental play and SEM promises sustainable growth with strong operating cashflows

I have not yet factored in any contribution from its JV with Swedish company Trelleborg in producing composite hoses which hold much hopes in driving long term growth of the company

So I forecast that Wellcall will post a record quarterly pretax profit of close to RM13.9m + (2.9+4.7)x80% = RM20.0 million for the upcoming Q4FY2022.

I assume that Wellcall shall be able to realise 80% of the benefits from lower latex costs (as the company might have bought forward some at higher prices) and weaker ringgit (as the company might some negative effect in entry costs from the weaker ringgit).

91% of Wellcall revenue is export based. As ringgit has depreciated by over 10% against US dollars in Q4FY2022, so revenue for Q4 will have increased by RM47.1m x 10% = RM4.7 million which will flow thru to the bottom line almost entirely.

thanks avenirlearning for the article above. As can be seen in the charts in the article, latex costs have come down by 15% to 20% in Jul-Sep 2022 quarter from the June 2022 quarter.
About 60% of Wellcall's cost of sales is raw material cost, so if I take a 15% reduction in latex costs in Sept qtr, the company cost of sales will have dropped by RM31.9m x 60% x 15% = RM2.9 million, and profit before tax will have increased by the same.

For more info and calculations of potential earnings contribution from 7-Cafe, please see my comments in SEM trail

Competition is good in the sense that it prompts entrepreneurs to innovate in order to survive. VT & BJgroup has demonstrated its ability to defend its retail franchise business and grow its presence at the right time.

We have seen its franchise in McDonalds and Starbucks flourishing after fencing off various competitors. There will be no exception in its franchise in 7-11 too. They know the business well, well enough to fence off newcomers.

Now we are seeing newcomers in convenient stores business expanding aggressively like Family Mart, CU Mart, MyNews stores etc. We see more crowds in some Family Mart or CU as they are new and consumers find some new offerings from Japan and Korea, just like we saw crowds in boba tea cafes early last year. After the new wave of enthusiasm subsides, it will come down to cost effectiveness and location network which 7-11 is still the leader.

If you remember, it has taken BJFood several years to start seeing the benefits of having more drive-thru Starbucks stores and to enjoy economy of scales and hence a jump in earnings from early 2021. Before that Starbucks needed to defend its position from various competitors like Coffee Beans, Georgetown Coffee, Oldtown Cafes, various kopitium and a wave of boba tea cafes across the nation.

The transaction ticket has increased by 15% to RM8.43 per pax in 2Q2022 vs 2Q2021, driven by higher margin food items, without any significant contribution from 7-Cafe yet. And the longer operating hours for some 7-11 stores has increased no of customers per day per store to 349, leading to a 44% increase in average day sales per store to RM2,940. Coupled with higher transaction size, revenue increased by 47.5% y-on-y.

It will take time for SEM to realise the benefit of opening more 7-Cafe as it needs to be selective in terms of location while being mindful of the capex requirement and potential competition.

But the benefit of realising higher transaction size will be huge as it flows almost directly to the bottom line. This can be clearly seen from its improving net profit margin of 3.9% in 2Q2022 (PAT of RM25m on revenue of RM644m) for convenient store segment vs 2.6% in 3Q2020 (PAT of RM13.2m on revenue RM505m).

CIMB analyst has budgeted a higher capex of RM120 million a year, taking the top end RM600k as average capex for 200 new 7-Cafe a year, but I think it will likely come within RM100m

certainly so as SEM only had 31 7-Cafe as of 30 June 2022 and planned to have 130 7-Cafe by end 2022. This means that it can open 100 7-Cafe outlets in 6 months.

If it continues doing so at a pace of 200 7-Cafe per year, then in 5 years time 50% of its stores will be in 7-Cafe format. The capex for opening a new 7-Cafe is higher at RM500k-600k compared to RM300-400k for a traditional 7-11 convenient store. But I think converting a traditional 7-11 convenient store into a 7-Cafe will need lower capex than RM500-600k, possibly just RM300k. If I take an average of RM450k for opening / converting a 7-Cafe, then to open 200 7-Cafes will require about RM90 million capex a year, which is within my ballpark estimates.

Furthermore, I see higher free cashflows for SEM compared to BJFood

As calculated above, BJFood may register free cashflows of RM134m a year or 7 sen per share vs current share price of RM0.99 giving a FCF yield of lower than 7%.
SEM may register over RM300m of operating cashflows a year, minus off planned capex of about RM80m, free cashflows may come in about RM220-230m a year or about 18 sen per share vs share price 1.65, giving a FCF yield of 10.9%

For higher earnings growth, I have already switched to SEM as I see similar growth trend in its 7-11 business profit margin as in BJFood profit margin expansion from 2021 once they achieved economy of scales and successful rolling out of higher margin store format (drive-thru store for Starbucks and 7-Cafe format for 7-11)

I have not read the CIMB report, but I see Maybank analyst raising tp for BJFood from RM1.24 to RM1.50 after raising EBIT margin by 2% to 20%, which I think is hard to achieve in the high inflation environment.

But I do note that growth may come in a decent rate as BJFood plans to open 35-40 new Starbucks outlets in FY2023 from currently 376 outlets, for a 10% increase in topline.

As for its earnings outlook, I think its operating margin will come under pressure as ringgit depreciates a lot against US dollars, Starbucks cannot just keep raising prices of the drinks (now already at RM15-18) beyond RM20 per coffee. This inflated prices will for sure dampen demand, for one I will go more to local kopitium for a traditional white coffee at RM2.00 per cup, rather than spending 10x more for a Starbucks coffee.