YTL Power’s long-term outlook still bright

by **Cals** Fri 07 Feb 2014, 11:36

Business & Markets 2014

Written by CIMB Research

Friday, 07 February 2014 10:30

Power sector
The media has reported that 1Malaysia Development Bhd (1MDB) has displaced YTL Power International Bhd as the front runner in the tender for a 2gw coal-fired power plant, dubbed Track 3B. We understand that one of the reasons for the Energy Commission’s (EC) preference for 1MDB is its proposed location of the plant.

1MDB’s proposed site, Jimah, Negeri Sembilan, has a closer injection point to the primary load than YTL Power’s Tanjung Tohor site in Johor. YTL’s further injection point implies higher transmission losses in the form of energy lost through heat over the distance.

The final decision lies with the Cabinet and could come as early as this Wednesday when the Cabinet meets again.

Any win by 1MDB will be a temporary setback for YTL Power, in our view, as it plans to keep a regulated business in Malaysia after the expiry of its power purchase agreement in 2015.

However, we believe that there will be opportunities for YTL Power to bid for other new plants, given the EC’s plans to increase generation capacity and replace older, less efficient power plants. We estimate that the EC could tender out another 3gw to 4gw in new generation capacity over the next two to three years.

Although it plans to improve generation from coal, we think that it could still tender out gas power plants to replace the older combined-cycle gas turbine plants. YTL Power has better chances of winning such tenders, in our view, given its track record with gas power plants.

A tender success for 1MDB will be a catalyst for its planned initial public offering later this year, in our view, as the new power plant can improve its earnings outlook.

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We think YTL Power’s share price could be weak in the near term given the negative news flow, though we remain positive on its longer term outlook. We remain “overweight” on the sector with Tenaga Nasional Bhd as our top pick. — CIMB Research, Feb 6

This article first appeared in The Edge Financial Daily, on February 07, 2014.