KUCHING: YTL Power International Bhd (YTL Power) is not likely to be fundamentally impacted by recovery of up to RM700 million from Petroliam Nasional Bhd (Petronas), analysts opined.
According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), the media reported last weekend that YTL Power is one step closer to recovering up to RM700 million from Petronas for overpaying on gas supplies over the course of the two local power plants namely Paka and Pasir Gudang Power Plants.
“It was reported that arbitrators in London have reached a decision in favour of YTL Power after conducting evidential hearings since March this year.
“However, the exact quantum of the settlement, when and how it will be paid was not made clear as the settlement is still being finalised,” the research arm said.
Kenanga Research did not expect this to have a fundamental impact to YTL Power but more of a one-off claim for the disputed sum stemming from a disagreement between YTL Power and Petronas that dates back to 1997 on the gas price the first independent power producer (IPP) has to pay.
The research arm noted it had been reported that YTL Power had in 1993 entered into a gas supply agreement with Petronas where the price of the gas to be supplied is calculated based on a market price-related formula at a discounted price.
It further noted that this was however, withdrawn during the 1997 Asian financial crisis as the government adopted a fixed gas price of RM6.40 per million British Thermal Unit (mmbtu).
Kenanga Research said that in fact, it was already reported in YTL Power’s financial year 2014 (FY14) Annual Report that RM261.1 million, up from RM254.6m in FY13, was recognised as amount recoverable from supplier in relation to the arbitration.
The research arm added that should YTL Power win this arbitration, the RM700 million claim would add only 8.5 sen per share to the group’s current revalued net asset valuation (RNAV) of RM1.87 per share, assuming cash settlement.
“Hence, there is only 4.5 per cent increment in RNAV valuation,” it said.
Kenanga Research believed the power purchase agreement (PPA) extension of the two power plants is more important since the PPA for Paka Plant will expire this September and early next year for Pasir Gudang Plant.
It added that so far, there is no news of the PPA extension for GEN1 IPPs although the concession expiry is fairly soon. On the outlook for YTL Power, Kenanga Research noted that being in the utility concession business, the group’s earnings are fairly resilient.
“However, there are concerns over the Singaporean operations as the electricity market there remains competitive with new capacity coming on-stream, although the strong S$ should benefit YTL Power,” it said.
Meanwhile, Kenanga Research noted that earnings prospect for YES is set to improve, judging from its growing subscriber base. As for Wessex Water, the research arm said that earnings are expected to be fairly flattish until it gets the next tariff revision.