YTL looking at potential 1BestariNet cancellation

by **Cals** Sun 22 Mar 2015, 22:51

YTL looking at potential 1BestariNet cancellation

By CIMB Research / CIMB Research | March 20, 2015 : 10:25 AM MYT

[size=14]YTL Power International Bhd ([You must be registered and logged in to see this image.] Financial Dashboard)
(March 19, RM1.53)
Maintain add with unchanged target price of RM2.04. Malaysian Public Accounts Committee (PAC) chairman Datuk Nur Jazlan Mohamed was quoted as saying that the Education Ministry should cancel the RM4.1 billion 1BestariNet school project due to the poor delivery of its first phase.

According to the report, the first phase of the project, completed at a cost of RM633 million, did not yield the expected results.

We think the odds of 1BestariNet being cancelled given the current scrutiny over the implementation of the project have risen. YTL Power was fined RM2.4 million in November 2014 when it failed to meet the stated targets.

The 1BestariNet project was awarded to YTL Power unit YTL Communications in 2011 on an open tender basis. The value of the project is estimated at RM4 billion over 15 years.

Note that YTL Power’s WiMax division is still loss-making; thus the cancellation of the 1BestariNet project will widen the division’s losses and result in a 3% to 4% overall earnings reduction for YTL Power, according to our estimation.

Our assumption is based on annual revenue of around RM268 million and a 10% to 15% pre-tax margin for 1BestariNet.

Although a decision to cancel the project will further widen YTL Power’s WiMax losses, we believe the impact on YTL Power’s earnings will not be too significant.

Furthermore, a report in The Edge Financial Daily quoted the PAC chairman as saying that the Education Ministry had told the committee it would stick with YTL despite the project’s shortcomings, suggesting the solution to cancel 1BestariNet was not as clear-cut as it would seem. — CIMB Research, March 19

This article first appeared in The Edge Financial Daily, on March 20, 2015.
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