KUALA LUMPUR: Credit Suisse Securities Research is maintaining its Underperform on YTL Power International on concerns about its investments in projects which are not widely adopted.
It said on Wednesday, Dec 15, YTL Power is fairly valued, as it is trading at a FY11E price-to-earnings (PE) of 15 times, which is in line with the Malaysian market P/E. It maintained its Underperform rating.
On Tuesday, YTL Power said it was investing in oil shale in Jordan with the acquisition of a 30% stake in Enefit’s Jordanian oil shale projects, marking its foray into the upstream oil business.
The consortium plans to develop an oil plant with output of approximately 38,000 barrels per day and a 900 megawatt oil shale-fired power plant. As oil shale extraction is not widely adopted yet, the output figure may be contentious.
“Main concerns with oil shale: (1) cost has been significantly higher than conventional pumped oil (2) environmental concerns.
“As oil shale is still largely ‘conceptual’, we would not incorporate any profit contribution from this project yet. The risk profile of YTL Power continues to increase as it is investing in projects that are not widely adopted, that is Wimax and oil shale,” it said.
It rose one sen to RM2.42 at midday on Wednesday.
http://www.theedgemalaysia.com/business-news/178596-credit-suisse-maintains-underperform-on-ytl-power.html
YTL Power to gain in long term
Its Jordan venture will have limited near-term impactPETALING JAYA: YTL Power International Bhd's venture into oil shale projects in Jordan is likely to yield results in the long term, according to research houses.
TA Securities in a report yesterday said it was making no changes to YTL Power's earnings forecast for the financial years 2011 and 2012.
This is a long-term project which is unlikely to have a significant impact on the immediate term, it said. TA Securities forecasts YTL Power to record net profit of RM1.29bil and RM1.48bil for the financial years ending June 30, 2011 and 2012 respectively.
On Tuesday, YTL Power said it was investing in oil shale in Jordan with the acquisition of a 30% stake in Estonian state oil company Eestia Energia (EE), marking its foray into the upstream oil business.
The value of the investment in the project will be determined after the debt to equity structure of the project is finalised. The entire project is estimated to cost around US$5bil. The consortium plans to develop an oil plant with output of approximately 38,000 barrels per day and a 900 megawatt (MW) oil shale-fired power plant.
HwangDBS said the investment would have a limited near-term impact as the construction would only commence following further analysis of the resource and environmental studies.
We expect the project to be mainly debt-funded by non-recourse project loan, with targeted mid-teen return.
The additional debt will not be consolidated into YTL Power's book given its 30% associate stake. (Its) equity portion is likely to be funded by internal funds, but other details of the planned investment are not disclosed at this juncture. HwangDBS said.
AmResearch said the project, if materialised, would introduce uncertainties to YTL Power's recurring income profile given the greenfield development's high operating costs and risks for an oil shale operation and high geopolitical risks in the Middle East.
We understand that YTL Power is venturing into this business to complement the oil trading activities of its wholly-owned Power Seraya. Assuming an equity to debt ratio of 40:60, we estimate that this could mean an investment of RM1.9bil versus the group's gross cash of RM7bil currently.
TA Securities said the key attraction of this project was the inclusion of the 900MW oil shale-fired power plant, which would help ensure the economic viability of the upstream project.
According to the IEA (International Energy Agency), the production cost for oil shale is about US$52 to US$113 per barrel versus US$6 to US$28 per barrel for conventional source in the Middle East, it said.
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