YTL Power International – YTL Power buys Singapore’s PowerSeraya

December 10, 2008 at 6:50 am Leave a comment

• YTLP ventures into Singapore
YTL Power (YTLP) together with its wholly-owned subsidiary Sabre Energy Industries Pte Ltd (SEI), has agreed to purchase 884.9m shares (100% equity interest) in PowerSeraya from Temasek Holdings for a purchase consideration of S$3.6bn (RM8.56bn). Based on PowerSeraya’s FY07 annual report, the company recorded an EPS of S$0.25/ share (RM0.59/ share), pegging the PER of the purchase at about 16x.
• Source of funding
YTLP plans to fund the acquisition with S$1.15bn (RM2.74bn) from its cash reserves, acquire a loan for S$2.25bn (RM5.36bn), with the remaining S$200m (RM476m) paid of by assuming Temasek’s debt The group has more than sufficient funds to pay the S$1.15bn in cash.
However, the loan would now result in YTLP’s interest payments increasing by about RM240m per annum.
• Impact on earnings
Based on PowerSeraya’s 07/08 Annual Report, the group recorded a PAT of S$218m (RM518m). Given this earnings and considering that all other costs would be the same, except for the additional RM240m interest payment and the loss of interest on the cash used amounting to about RM80m, this would result in YTLP adding an additional RM198m per annum in earnings to its books.
• Maintain TP and Call
We have taken into account the additional income and expenses in our forecasts from FY09 onwards. However, the net impact on our valuation is not significantly higher. We maintain our TP of RM2.93 and our BUY call on the stock.

Information on PowerSeraya
PowerSeraya is Singapore’s 2nd largest power generation company in terms of installed capacity. It has a total licensed capacity of 3,100 megawatts (MW), which represents approximately 25% of Singapore’s total licensed generation capacity. PowerSeraya was granted an electricity generation licence by the Energy Market Authority of Singapore (EMA) for a 30-year period to 2032, while its subsidiary Seraya Energy Pte Ltd, holds a 10-year retail electricity license to sell and trade electricity in the National Electricity Market of Singapore (NEMS).
The group has 2 subsidiaries:
i) Seraya Energy Pte Ltd, which provides energy solutions to contestable customers in Singapore’s NEM and has a market share of 28% in the contestable Retail Market. It is also the investment arm of the group.
ii) PetroSeraya Pte Ltd, which has been set up under Seraya Energy Pte Ltd, plays a key role in managing the Group’s fuel purchases. It is the physical oil trading arm of the group and has been set up to improve the group’s fuel procurement, cut risks and improve the value of its fuel stock.

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