PETALING JAYA: YTL Power International Bhd is expected to deliver a lower net dividend yield this year, as additional overhead costs associated with its Paka power plant could negatively affect the company’s dividend payout.
In a report, UOB Kay Hian Research said that it has reduced YTL Power’s expected net dividend yield for the financial year of 2017 (FY17) to 4.7% from 6.8% hitherto, on the back of the dim near-term dividend outlook.
The research house also cut the energy firm’s forecast dividend payout for FY17 from 100% to 70% of core net profit.
“The lower dividend forecast takes into account an estimated RM100mil Paka before-tax losses for FY17, reflecting overhead costs as Paka is not yet operational. Given that Paka’s new contract starts in Sept 17, we are maintaining our FY18-19 dividend payout of 90%-100%.
“This translates to a net dividend yield of 6.8%. Separately, we understand the group prefers to reserve its RM9.3bil warchest for opportunistic acquisitions,” said the research unit in a note.
The Paka power plant, is one of the first generation independent power producers in Malaysia, with an installed capacity of 808 megawatts. The electricity generation facility was kept idle for the whole of FY17, following disagreements with utility giant Tenaga Nasional Bhd (TNB) over land lease rates.
Both YTL Power and TNB signed a new power purchase agreement (PPA) and a new land lease agreement (LLA) in mid-May, to enable the gas-fired Paka power plant to continue operations for a further period of three years and 10 months.
Notably, the new PPA extension comes with lower tariff rate, which are significantly lower than the original PPA terms.
However, UOB Kay Hian Research said that the new PPA for Paka power plant is anticipated to lift the group’s earnings marginally. Based on new tariffs, cashflow for YTL Power is estimated at RM50mil annually, which will help lift the energy firm’s FY18 core net profit by 1.6%.
Moving forward, the research house remains sanguine on YTL Power and has reiterated its “buy” call on the firm, with a target price of RM1.65.
“We maintain our bullish stance on the stock, albeit on a longer-term horizon, as the group’s Jordan and Indonesia new power plant projects eventually crystallise and lift long-term earnings in the next five years by 65%. We also note that construction and execution risks associated with the developmental phase are minimal given the group’s vast experience in power plant projects,” it said.
YTL Power owns a 45% stake in a Jordanian shale gas power plant, which is slated for commercial operations by mid-2020. In addition, the firm also controls an 80% stake in a US$2.7bil (or RM12bil) PT Tanjung Jati greenfield coal-fired power plant in Indonesia, slated for commercial operations in 2021.
The PT Tanjung Jati power plant is owned by a consortium called PT Tanjung Jati Power Co, which consists of YTL Power with an 80% stake and Bakrie Group holding the remaining 20%.
UOB Kay Hian Research added that the 1,320MW PT Tanjung Jati is projected to lift the group’s future earnings by RM337mil or 41% of the group’s FY19 earnings.
In an earlier note, Affin Hwang Capital Research indicated that the internal rate of return for the project is expected to be around the high single-digit level.
“Although the consortium has signed the amended PPA at the end of 2015, they have yet to achieve financial closure. However, management is confident that they will able to do so by the end of the year, hence, we are including the value of the power plant into our net asset value,” said the research house.
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