Cautious deal for YTL Power: AmResearch

PETALING JAYA: AmResearch is cautious on YTL Power International Bhd's plan to acquire up to a 49% stake in India-based NSL Group's thermal power business given India's regulatory uncertainties over coal and electricity supply.
In a research note last Friday, Am Research said, for instance, Tenaga Nasional Bhd's combined cycle liberty power gas plant in neighbouring Pakistan had encountered fuel supply issues in the past which required significant impairments for its investment.
It was reported that last week YTL Power's parent YTL Corp Bhd is in a negotiation to buy as much as 49% stake in NSL Orissa Power and NSL Infratech.
NSL Orissa Power is setting up a 1,320 MW coal-fired power project in Angul, district of Orissa with an investment of Rs 8,000 crore (RM4.2 billion), which is being funded through debt:equity of 70:30.
NSL Infratech, meanwhile, is involved in operations and maintenance services for the power plant as well as real estate and infrastructure.
AmResearch said based on a 30:70 equity-to-debt ratio, it is expected that a 49% stake in the plant to cost RM1.1 billion, which is well within YTL Power's funding capability.
"The full capex of a 1,320MW coal plant could easily reach US$2.3billion (RM7.35 billion), based on Tenaga's Project 3A's US$1.7mil/MW," the research house said.
For YTL Power's domestic power generation business which will expire in September next year, AmResearch opined that there is a strong likelihood that the power purchase agreement for the Paka and Pasir Gudang plants may be extended by a few years, given that Peninsular Malaysia's power reserve margin may drop below 30% by 2016 if the Gen1 plants are taken offline.
On a separate note, AmResearch said it remains cautious on Yes' losses given YTL Power's commitment to expand its services to 10,000 schools in Malaysia under the 1BestariNet project.
"There is a likelihood that the breakeven level may not be achievable after Yes achieves its targeted subscriber base of 1 million," it added.
AmResearch has maintained a "hold" call on YTL Power with an unchanged target price of RM1.56.
YTL Power's share price closed 2 sen higher to RM1.57, while YTL Corp up 1 sen to RM1.66 last Friday.