Hong Leong on YTLP

Interesting piece by Hong Leong research. 

I think this is the first research house that recognise the possibility of YTLP operating as a full fledge telco. Kudos to them.

Check out my piece back from Dec 2013.

YTL Power - Project 3B, 1MDB, currency movement and share buyback

In the past 6 months, there have been a renewed interest in YTL Power - leading to a rebound in its share price from its recent trading range below 1.60 to above 1.90 in late November.

























PROJECT 3B & 1MDB
These renewed interest is probably due to rumours of its lead in its bid for the Project 3B power plant award.

However news have since surfaced that 1MDB is now in the lead, although its bid is higher than those of YTL Power. The EC justified its preference for 1MDB due to projected cost involved in the transmission from the proposed plant to the "load centre".

Its share price have since retreated following the report.

It's not over, intense lobbying is underway.

Interestingly...

EC is basically adding an extra criteria subsequent to the tender.

Bottom line

Although I believe that the award of the project will not be a big boost to YTLP's profitability anyway, it does enhance the perception of the counter among the investment public.

SHARE BUYBACK

Since 7 October 2013, the company have continued its rather aggressive buyback program.

As of 13 Feb 2014, there's a total of 690,424,745 treasury shares - representing 9.62% of the total outstanding share. 

This is an buyback of 472,321,700 from 7 October 2013, assuming an average price of 1.80 - this is a buyback worth RM850,179,060.

Since March 2013 - the company have repurchase approximately RM1.5B of its own shares. They have a market cap of about RM13B currently. 

As I previously mentioned, ceteris paribus these buyback are great for its warrant. 

CURRENCY MOVEMENT

YTLP generate the vast majority of its revenue from oversea. In the past 12 months MYR have depreciated by about 5% and 15% against SGD and GBP respectively.

 Wessex water contributed RM194M in Q1 of 2014 to YTLP or approximately 60% of its PBT. A 15% appreciation of GBP will boost YTLP's PBT by about 9%. Power Seraya contributed about RM 153M or 48% of YTLP's Q1 profit. A 5% appreciation should improve Singapore's contribution by about 2.5%.

CONCLUSION

The real catalyst that I am looking for on YTLP is the breakeven point for YES. Its CEO indicate that it would be around Q2 of 2015. According to him, the network is "LTE ready"- there's just not enough device in the ecosystem to warrant the activation of LTE. 

From a consumer perspective, once YES is truly 4G - they will be equal to other telco like Maxis or Celcom. Maxis have a market cap of 52B and earn approximately RM 1.7B last year. This compare to a market cap of RM 13 B for YTLP and an earning of RM1.3B for YTLP last year.

Crystalising losses on China Stationary Limited

A year back, I came across China Stationary Limited. A company that's cheaper than cheap - trading below cash, heck even below 1X operating cash flow.

I looked at the company and recognise its poor governance but despite the red flags raised I allocated a (very) small portion of my portfolio to this share.

I've initially purchased the counter at 0.355, then averaging down all the way to 0.255 back in August 2013.

Since then, we have had the disposal by its majority shareholder (from over 71% to below 23%), demised of the major shareholder, even the auditor resigned. They pay 15% to 35% for interest on borrowing yet only receive less than 0.5% for its cash at bank...

Operationally, the company seems to be doing well. But with the market distrust of all thing China - CSL's share have continuously trended down since my initial purchase.

While the company have gotten even more attractive from a valuation standpoint. I am deeply disturbed by the quality of disclosure by the company.

In a local investigative article by The Edge, the newspaper have raised many legitimate question regarding the company, including the authenticity of the cash in bank and its business model - in the aftermath of the article, the local regulator did not even ask any question of this company.

Perhaps the person in charge is still away on holiday...

What sort of business borrow at a hefty 35% while only receiving 0.4% for its cash balance? They don't even need to borrow as they have more than a billion in cash at bank?!

The major shareholder sold their share, the auditor resigned, the share have crashed. No query from Bursa...

This episode taught me an important lesson in not buying shares in companies with shady governance, no matter how cheap they may be. I wish everyone still holding onto the shares "good luck".