Shares of YTL Power hit an all-time-high of RM2.29, rising by 5.05% or 11 sen.
PETALING JAYA: Investors reacted positively to YTL Power International Bhd
emerging as the single largest shareholder in Ranhill Utilities Bhd, which effectively gave YTL Power a footing in the utilities space once again.
Shares of YTL Power hit an all-time-high of RM2.29, rising by 5.05% or 11 sen yesterday as 51.1 million shares changed hands.
Meanwhile, Ranhill stock improved by 6.8% or five sen to 78.5 sen.
About 75.3 million shares were transacted, making Ranhill the third most active stock on Bursa Malaysia yesterday.
The stake purchase by YTL Power in Ranhill certainly caught the market by surprise, even though it is seen as a good fit for the former to further strengthen its footprint in Johor.
Ranhill has experience in both water treatment and power generation with a strong base in Johor, while YTL Power is developing data centres and solar parks.
According to MIDF Research, there should not be an impact on YTL Power’s earnings for now, since the stake purchase in Ranhill is still below the 20% threshold.
On Wednesday, YTL Power announced that it had acquired an 18.87% stake in Ranhill, effectively making it a substantial shareholder.
The research house, which maintains its earnings estimates on YTL Power, has a “buy’’ call on the stock with a target price (TP) of RM2.43.
“This acquisition should not strain its balance sheet significantly, given its healthy operating cash flow and solid cash balance of RM9bil,” added MIDF Research.
Meanwhile, CGS-CIMB Research’s initial take on the purchase is that it offered YTL Power exposure to the local utilities sector.
“The acquisition price works out to about minus three times the enterprise value/earnings before interest tax and depreciation and a free cash flow yield of 12%, based on Bloomberg consensus 2024 estimates, and in our view, it appears attractive,” it added.
Based on Bloomberg data, CGS-CIMB Research said it appears that the transaction was carried out at 58 sen per share, which translates to a purchase price of RM140mil.
The research house also noted Ranhill’s growth outlook seemed encouraging, driven by the potential increase in demand for water supply in Johor, on the back of the planned economic zones in the state.
In addition, there is incremental earnings from the recently secured contract in March this year for a 100MW gas-fired power plant in Sabah with planned commercial operations in 2026, as well as contributions from its maiden 50MW large-scale solar four or LSS4 farm in Bidor, Perak from December 2023.
“However, we feel the key challenge would be for YTL Power to increase its stake meaningfully to equity account Ranhill’s earnings,” said the research house in a note to clients yesterday.
CGS-CIMB Research, which has an “add” rating on the stock, has set a TP of RM2.40.
The downside risks include sharper-than-expected normalisation in electricity sales margins and earnings drag from non-core operations.
On the other hand, the rerating catalysts are better-than-expected quarterly earnings and new project announcements.
Ranhill is involved in three key segments, namely, environment, energy and engineering services.
In the first half of 2023, these segments made up 65%, 15% and 20% of the group’s revenue, respectively.
