With finalisation of PPA terms, the project is on track to reach financial close soon.
The research house said that the independent power producer (IPP) is looking at several options, which may include sukuk financing or US dollar financing, which is a bit more expensive than the former.
“We estimate finance rates to range between 5% to 7%. Construction of the plant is expected to commence next year,” MIDF Research said in a report Monday.
YTL shares closed one sen lower to RM1.16 at midday.
To recap, Tg Jati is a 1320MW coal power plant scheduled for commercial operation in calendar year 2021 with a 30-year PPA up till 2051.
The project is estimated to cost US$2.7bil (RM11bil) including land relocation cost and capitalised interest. While we understand the PPA negotiation was
“While we understand the PPA negotiation was prolonged as the local regulators intended to renegotiate rates, returns for the project are still attractive at an indicative 12%-13% internal rate of return (IRR), versus earlier mid-teens IRR guidance,” it noted.
According to the research house, rates had to be renegotiated as this is an old project awarded based on prevailing rates years back.
The project was delayed given relocation of the project site to Cirebon from Jepara originally.
YTL Power will also be involved in operation & maintenance for the project hence returns are likely to be at the higher end of the 12%-13% range, it added.
While the development is positive, in the near term, debt at the company is likely to build up to finance Tg Jati.
Because of this, MIDF Research said it has adjusted its FY19 forecast earnings down by 14% to reflect higher finance cost, while FY20 forecast earnings is expected to come in the range of RM695mil.
However it said there are value accretion from new projects.
“Though earnings are tweaked lower due to the debt build-up over the next few years, we also now factor in valuations of both the Tg Jati plant and the 45%-owned Attarat Power Company shale plant in Jordan into our sum of parts (SOP) valuation. Both the projects raise our gross SOP by a substantial 52sen/share or 43%,”
YTL Power also has a 45% stake in Attarat, which will construct and operate Jordan’s first oil shale power plant, located in Attarat Um
Ghundran. The project is expected to be in operation in the middle of 2020.
The US$2.1bil 470MW plant entails a 30-year PPA with the country’s National Electric Power Company. Its other partners are China-based Guangdong Yudean Group (45%) and Eesti Energia AS (10%).
Construction, undertaken by the Chinese party, is currently well underway. The project comprises of the power plant itself, a fuel and mixing yard, an oil shale mine, water wells and mine infrastructure. Given that this is the first such plant in Jordan, the concession entails a very attractive IRR of 19%, noted MIDF Research.
Following these developments, the research firm re-affirms its “Buy” on the stock as it is one of the few local proxies to lucrative overseas power plant projects.
“We raise our target price to RM1.55 (from RM1.20 previously) as we factor in the 80%-owned Tg Jati and 45%-owned Attarat plants into our SOP-based valuation.
“Despite higher finance cost over the next few years, dividend yields are decent 3.9% over our forecast horizon while valuations are at a discount to the market’s 16x-17x.”
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