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.