Stock Review – YTLPOWR(6742) (YTL POWER INTERNATIONAL BERHAD)

Bursa Malaysia - 6742
Bloomberg - YTLP:MK
Yahoo - 6742 .kl

Webpage - http://www.ytl.com/

Company Profile

YTLPOWR had three business segments as follows:

1)   Multi Utilities Business (Merchant) – 55.0% of 2016 revenue

2)   Water and Sewerage – 32.4% of 2016 revenue

3)   Mobile Broadband Network – 6.8% of 2016 revenue

1) Multi Utilities Business (Merchant)

55.0% of YTLPOWR revenue come from these segments. YTLPOWR operated 3,100 MW of installed capacity comprised of steam turbine plants, combined cycle plants and co-generation combined cycled plant in Singapore. Besides selling electricity, YTLPOWR able to receive additional incomes from the sales of the by-product of the plants; steams and portable water. There are more new entries of electricity retailers in Singapore had make the retail electricity sector very competitive.

YTLPOWR power purchased agreement in Malaysia had completed in September 2015 and now only awarded project to supply power from Paka Power Station on short term basic.

Besides Singapore and Malaysia, YTLPOWR also owned partial of power plant company in Indonesia and Austrialia.

YTLPOWR had two power plant in the development stage and had power purchase agreement for over 30 years after completion of projects. The two projects are 2 x 660MW coal plant in Indonesia and 554 MW oil shale-fired plant in Jordon. The Jordan plant is planning to operate in 2017.

PROS:

è Able to sells the by-product of the plants to provide addition income to YTLPOWR. è YTLPOWR is developing 2 power plants which will provide income stream for the next thirty years if completed.

CONS:

è  Addition new entries of electricity retailers to Singapore had make the retail electricity sector very competitive. è Power purchased agreement in Malaysia had competed in September 2015

2) Water & Sewerage

YTLPOWR had a wholly owned subsidiary, Wessex Water Limited, operate water & sewerage business in UK. Wessex Water Limited serving 2.8 million users in southwest, England. In 1 April 2015, Wessel Water’s regulator (Ofwat) implement price controlled for the water supply until 2020. Wassex Water Limitted also having assistance programme to support customer who are financially vulnerable.

CONS:

è  Price controlled had implemented for five years from 1 April 2015. This might reduce the profit margin for Wessex Water Limited è Provide assistance programme to support customer who are financially vulnerable reduce the revenue

3) Mobile Broadband Network

YTL Communication Sdn Bhd, 60% owned by YTLPOWR is the first to launched VoLTE (Voice over LTE) in Malaysia in June 2016.

Financial Statement

YTLPOWR had RM 8,077,220,000 Intangible asset or in other word goodwill. Goodwill is recorded when the company use higher cost to purchase another company. Goodwill is review by the management yearly and is impaired when the goodwill is not applicable anymore.

Besides that YTLPOWR had increase in the inventories from RM 440,418 to RM 805,902,000 the increase to the inventories is due to development land of RM 365,281,000 for acquisition of land at Filton Airfield, Bristol.

The receivable, deposits and prepayment had also decrease from RM 2,292,926,000 to RM 1,723,420,000 the decrease of receivable is main due to collection of receivable which had past due as receivable past due had decrease from RM 830,182,000 to 457,217,000.

YTLPOWR had SGD 697,396,258 or RM 2,079,356,683 revolving credit and SGD 757,173,077 or RM 2,257,587,246 unsecure term loan to be paid fully on 14 September 2017. Besides that YTLPOWR has GBP 140,000,000 or RM 754,740,000 unsecured term loan had to paid in full on 15 December 2018. YTLPOWR had many borrowings and bonds in foreign currency. They are USD 600,000,000, GDP 1,799,148,689 and SGD 2,269,987,107.

The post employement benefit obligations has increase from RM 743,365,000 to RM 874,272,000 main due to the increase in defined benefit plan in United Kingdom from RM 734,028,000 to RM 861,832,000.

PROS:

è Account receivable past due had decrease from RM 830,182,000 to RM 457,217,000

CONS:

è RM 8,077,220,000 intangible asset. è YTLPOWR had huge amount of borrowings and bonds in USB, GDP and SGD. è YTLPOWR had Define benefit plan for employee in Indonesia and United Kingdom.

Director and Shareholder

YTLPOWR mostly owed by Tan Sri (Dr) Yeoh Tiong Lay and his family. YTL Corporation Bhd owned 47% of YTLPOWR. Tan Sri (Dr) Yeoh Tiong Lay indirectly owed 63% of YTLPOWR.

Warrant

Annual report 2016 shown that there are still 152,792,175 warrant not excise, The warrants can convert into ordinary share of RM 0.50 par value any time between 2008 / 2018.

CONS:

è Once the warrants is excised. The share will be dilute. Summary of Stock Reviews

Stock Review – MFCB (3069) (MEGA FIRST CORPORATION BERHAD)

Bursa Malaysia - 3069

Bloomberg - MFCB:MK
Yahoo - 3069 .kl
Webpage - http://www.mega-first.com/

Key Value Investor Criteria: -

Description	Value	Criteria	Point
Price to Tangible Book Ratio	0.68*	< 1	5/5
Stock Valuation	CAPM => 2.90% Return (2008-2014) => 19.18% Undervalue by 16.28%	CAPM < Return	5/5
Return on Asset	9.6*	> 0	4/5
Return on Common Equity	10.13*	> 0	5/5
Quick Ratio	2.88*	>1	5/5
Long term Debt / Total Capital	15.56*	<50%	5/5
Continue Dividend over Past 10 Years / Since Inception	Yes	Yes	2/2
Cash From Operation	Positive > 5 years	Positive	5/5
Total Point			36/37

Note:

 *            Data obtain from Bursa Marketplace on 12/7/2015

  

By scoring 36/37 (97.9%), we will look into the annual report and the latest quarterly report of MFCB before making the decision to buy the stock.

By comparing the CAPM method and the average return of MFCB from the year 2008 to 2014. MFCB undervalue by 16.28%. From 2008 to 2014 MFCB is able to provide an average return of 19.28%.

However with such a good valuation and ratio, as a value investor we always look into the annual report, quarterly report and any announcement before making any investment decision.

Company Profile

MFCB consists of three main business divisions as follows:

1)  Power Division – 61.6% of total revenue (2014 annual report)

2) Property Division– 14.5% of total revenue (2014 annual report)

3)  Resource Division –11.5% of total revenue (2014 annual report)

1) Power Division

The power division operating two plants, one in China and other in Tawau, East Malaysia. On 3 March 2015 subsidiary of MFCB Ground Roses Limited and Silver Acreage had signed an agreement with Electricite du Laos (stated owned cooperation in Laos which operated the country’s main generation, transmission and distribution assets in Laos DPR) to undertaking the development and implementation of Don Sahong Hydroplant Project (capacity of 260 MW and 2000 GWh per year).

Since one of the power plant is in China, the weakening of ringgit against Chinese yuan will increase the profitability of the company. Besides that the reducing of coal price will also reduce the operating cost of the coal plant in China and hence increase the profitability.

The downside of this division is the Shaong Xi Power Plant contract end in October 2017 and the Tawau power plant has operation & maintenance contract until 2 December 2017. When these two mega power plant project terminated. MFCB will loss it main revenue unless the management able to start negotiating for extension of contract.

2) Property Division

The property division gives 14.5% of the revenue. However in this sector MFCB only have one high rise project which located in Petaling Jaya, PJ8 while other projects are only terrace link house. MFCB management need to make use of the available vacant land to start build high efficient high rise building to gain some decent profit from this division.

3) Resources Division

This division produced lime stone, it is one of the lime stone provider in Malaysia. As lime stone is one of the main materials in constructing and increasing number of construction sites in Malaysia, this division is expected to provide good sales for this coming year.

This division consists of 2 limestone quarry in Lahat and Gopeng, both is in Perak. MFCB is expecting to increase its limestones producing capacity in Gopeng with addition of 2 new klins and new hydration plants. The phase 1 of the expansion is expect to finished in May 2015. At the time of review there is no news announce by the company on the completion of the phase 1 of the project.

PROS:

On March 3, 2015, subsidiary of MFCB had sign an agreement with Electricite du Laos to develop and implement a 260 MW hydroelectric power plant in Laos. The subsidiary of MFCB will owned 80% of the shares of the implementation company. Depreciating ringgit against Chinese yuan will increase the profitability of the company Reducing coal price will reduce the operating cost of the coal plant in China. With increasing of construction sites in Malaysia, the demands of limestone might be increase.

CONS:

The two power plant contracts end in 2017, these will affect the revenue of MFCB which has most of its revenue (61.6%) from power division which only consists of these two power plant. MFCB only involve in low rise project which is not profitable compare to high rise project. Only one high rise project in Petaling Jaya (PJ8). No news on the completion of the phase 1 expansion of Gopeng quarry which is expected to finish in May 2015.

Management

The management team are mostly from business and investment background which do not have any experiences in any of the main business segments in MFCB (Power division, Property division and Resources division).

Most of the management team had directorship in others public listed company which will diverse their focus in MFCB. Besides that three of its directors are in the board for D&O Green Technologies Berhad which has negative operating cash flow in the year of 2010 and 2011. These might shows that the management is inefficient in controlling the cash flow.

CONS:

The management does not had experience from the related field. Board of director is holding board position in another public listed company which will diverse their focus in MFCB. Three directors are involve in another public listed company, D&O Green Technologies Berhad which had negative operating cash flow in year 2010 and 2011 which show some sign of inefficient cash flow management.

Financial Statement

For the quarter end 31 March 2015, the gross profit has reduced to RM 33,802,000 from 40,895,000 despite the reduction of coal price. This is due to low demands from both the power plants. However the net profit has increase from RM 10,333,000 to RM 24,735,000 mainly due to high foreign exchange rate.

In the financial statement of the company there are a goodwill on consolidation of RM 10,812,000 which the management can removed from the account anytime when there fell the goodwill does not consists any value. By analysing the balance sheet of MFCB, the company has very low debt and its consist of enough cash to convert all its liability.

MFCB is in a court case for a piece of land in Malacca which the court had order its subsidiary to pay for the damage on the breach of contract in 2005. The damaged claimed amount had not be proven at the court.

PROS:

MFCB had profit from the depreciation of Ringgit Malaysia MFCB has low debt and has sufficient cash to cover all liability.

CONS:

The demands of the power for both power plant had reduce for the year 2015. A goodview of 10,812,000 can impaired from the financial statement anytime. Losing a court case in 2005 required to pay damage to third party for breach of contract. The damage claim amount is not yet decided

Summary of Stock Reviews