PETALING JAYA: YTL Power International Bhd’s disposal of its 33.5% stake in ElectraNet Pty Ltd would see it unlock a sizeable estimated gain of RM2.2bil, which the utilities provider can deploy for future expansion and investments.
Analysts are positive on the proposed divestment going by reports that were issued yesterday, while on the stock market, the stock gained 5.5 sen or 9.17% to close at 65.5 sen.
On Tuesday, the group announced it had entered into a share purchase agreement with Australian Utilities Pty Ltd to sell off its entire 33.5% equity stake in ElecraNet and its corresponding shareholder loan notes for A$1.03bil or RM3.06bil.
YTL Power said the bulk of RM2.7bil or 89% of the RM3.06bil proceeds from the sale is expected to be redeployed for future investments in the next three years.
Analysts noted that the group recently revealed its new venture for a 500 megawatt (MW) large scale solar plant and for this, it had bought a 664 ha land in Kulai for RM428.8mil.
It had also acquired Dodid Pte Ltd, a 12.5MW data centre operator in Singapore, while parent YTL Corp Bhd is partnering Singaporean tech giant, Sea Ltd (which owns Shopee) for the application of the Malaysia Digital Banking Licenses.
However, at this point, the group’s potential new investment plans are still unknown.
Valuation-wise, RHB Research notes that the sale value represents four times financial year 2021 (FY21) price-book value, or a A$767.8mil (RM2.3bil) premium over its FY21 net value of A$258.2mil (RM774mil).
Post the completion of the deal, the group’s FY22 forecast net gearing would be lowered to 1.29 times from 1.75 times currently, the research firm added.
MIDF Research said that the proposed deal comes at a reasonably attractive valuation with Electranet having contributed A$24mil (RM72mil) profit after tax to YTL Power in FY21, or an estimated 16% of its core FY21 profit after tax.
“The deal effectively values ElectraNet at an estimated 42.8 times price earnings and represents 1.6 times the group’s regulated and contracted asset base,” it said in a report.
Going forward, CGS-CIMB Research said its FY23-FY24 forecast earnings per share will likely decline by 6%-7% after factoring in the absence of contribution from ElectraNet and higher interest income from the gross proceeds.
However, it said there was still upside to the research firm’s sum-of-the-parts (SOP)-based valuation post-disposal of the asset (excluding higher cash level from disposal proceeds), as ElectraNet only made up about 9% of the valuation.
“Our SOP-based target price remains at 82 sen. We reiterate “add” on the stock given the anticipated stronger FY22-FY24 forecast earnings and decent dividend yields.
“Stronger-than-expected earnings from multi-utilities are key potential re-rating catalysts. The key downside risks are weaker contributions from Wessex Water Ltd in the United Kingdom and its investment division,” said CGS-CIMB.
Meanwhile, RHB Research has upgraded the stock to a “buy” from “neutral”, with unchanged SOP-based target price of 68 sen.
The transaction is expected to conclude at the end of the second quarter of 2022.