YTL Power's participation the real issue: CIMB Research

PETALING JAYA: The award of the Track 4A power plant project once again via direct negotiations is a disappointment, especially since it is denying YTL Corp's unit YTL Power International Bhd the opportunity to win it back via an open tender, according to CIMB Research.
"This is negative as we had expected that the Track 4A project would be put up for open tender to allow YTL Power and SIPP Energy Sdn Bhd to bid for it again since we believed the backlash against the project was that it was awarded via direct negotiation. It looks like the real issue was YTL Power's participation via direct negotiation," the research house said.
However, CIMB Research believes YTL Power's relationship with SIPP Energy is still good and it leaves open the opportunity for both YTL Power and SIPP Energy to bid for other future power plant projects on an open tender basis.
It added that YTL Power's withdrawal has allowed SIPP Energy to proceed without controversy.
Last Thursday, Tenaga announced that it had signed the heads of agreement with SIPP Energy, signifying the principal terms of the proposed joint venture to build, own and operate the 1,000MW to 1,400MW Track 4A power plant in Johor.
CIMB Research believes the setback will not derail YTL Corp's "comeback" to the local infrastructure scene as the company should be able to secure an independent power purchaser concession in the future to replace the expiring power purchase agreements.
The research house is also positive on YTL's chances for the high-speed rail project, which connects between Kuala Lumpur and Singapore.
CIMB Research remains optimistic on YTL's competitive positioning for future power and infrastructure projects on an open tender basis. However, it has revised down FY15 and FY16 earnings per share forecasts by 6% to 8%, after removing the construction earnings contribution from Track 4A,
CIMB Research opined that key earnings catalysts for YTL over the next few quarters are intact with the expansion in cement capacity and the ERL extension to klia2. It has maintained an "add" rating on YTL, but with a lower target price of RM2.29.
"We believe the current negative perception on the stock will prove to be a good buying opportunity," it said, adding that YTL's valuation is back near its 10-year low at 10.5 times one-year forward price-to-earnings ratio.