Stock Focus Analysts positive over YTL Power’s Track 4A withdrawal

by **Cals** Fri 20 Jun 2014, 01:47

Stock Focus Analysts positive over YTL Power’s Track 4A withdrawal

Business & Markets 2014

Written by Ahmad Naqib Idris Adzman Shah of theedgemalaysia.com

Thursday, 19 June 2014 11:58

KUALA LUMPUR (June 19): Analysts viewed YTL Power International Bhd’s decision to withdraw from the Track 4A project as a good, long term move.

The RM3 billion power plant project was initially awarded to a consortium of SIPP Energy Sdn Bhd, YTL Power and Tenaga Nasional Bhd, via direct negotiations with the Energy Commission (EC) on May 27.

The public viewed the direct award of the contract negatively, as it was seen as a setback to the reform of the power sector.

In view of the criticisms, YTL withdrew from participating in the project “to dispel any misgivings over the government’s commitment to transparency and good governance".

The group says it welcomes any opportunity to participate in the project on a competitive basis, adding that it is confident it can offer competitive rates.

The EC said, in a statement yesterday, it accepted YTL’s decision to decline the invitation.

Commenting on the development, analysts from several research houses were mostly positive about the latest turn in the Track 4A project.

In a note today, CIMB Investment Bank Bhd said that YTL’s move was a negative surprise, but that it would be good for the long term.

“In light of the controversy surrounding the award of the project through direct negotiations, we think that YTL's decision is a good move in the long term, although it is negative in the short term.

“With YTL pulling out, the EC is likely to call for an open tender for Track 4A, albeit on an accelerated basis due to the urgent need for the plant,” said the research house.

CIMB expects the Track 4A open tender to be completed in three to six months, and is confident YTL is capable of winning the project as it was the lowest bidder in the Track 3B project.

The research house also noted that YTL had won the 1BestariNet 4G education project over 19 other contenders and that YTL had also done well in competitive bids worldwide.

CIMB maintained “add” on YTL with an unchanged target price (TP) of RM2.39.

Kenanga Investment Bank Bhd noted that the share price of YTL has contracted by some 20% since its 52-week high of RM1.86 in December 2013, but said that downside was limited.

The research house had also concurred with the view that YTL’s pull-out from the Track 4A project may not be bad for the group, as it had demonstrated its ability to offer competitive rates in the Track 3B tender exercise.

“Even if the EC goes ahead with Track 4A without YTL, the GEN1 IPP still stands a good chance in the upcoming tender exercise of Track 4B later in the year,” said Kenanga in a note today.

The research house maintained “outperform” on YTL, with a TP of RM1.77.

Meanwhile, Maybank Investment Bank Bhd said the potential RNAV accretion from Track 4A might not be substantial, as YTL was to share the project with SIPP and TNB.

“A more tangible impact would be the loss of potential construction earnings at YTL Corporation,” said the research house.

Maybank made no changes to its “hold” call on the stock, and had maintained its TP of RM1.66.