Tuesday, January 15, 2013

YTL Cash Rich vs Malaysia Airport cash strapped

I was again reading something and just wanted to highlight - again reporting, reading and don't think vs thinking and able to analyze yourself makes a lot of difference. This article by The Star today is talking about the possibility of YTL and Malaysia Airport having a joint bid for Stansted Airport, UK for a sum of RM5 billion. It is again saying YTL is cash-rich while Airport is cash strapped. Read below where I pulled out a section from The Star's reporting:
---------------------------------------------------------------------------------------
What is clear from checks with industry sources is that YTL Corp is very keen on holding the majority in the consortium and has sufficient funds for its equity portion. YTL Corp already owns UK's utility company Wessex Water Ltd and recently acquired hotels there. YTL Corp's Tan Sri Francis Yeoh and MAHB's Tan Sri Bashir Ahmad are very much involved in the deal to buy Stansted.If their bid is successful, it will add to the list of Malaysian corporate acquisitions of iconic UK assets, following last year's acquisition coup by the SP Setia-Sime Darby-Employees Provident Fund consortium of the Battersea Power Station project.While putting up the equity portion for the bid is less of a problem for cash-rich YTL Corp, does MAHB have sufficient firepower for coming up with its RM1bil (£200mil) portion?Sources told StarBiz that MAHB can manage that amount and had the funding plans for that. However, it might not be able to spend more than that on the Stansted bid, the sources added.
----------------------------------------------------------------------------------------------------------
If this bid is true, YTL will need to pull out RM4 billion while Airport will need to fork out RM1 billion. Let me pull out balance sheet of both companies and let us analyze.
Latest Current Asset portion of YTL

YTL's liability and equity
Debt of YTL and Equity

Airport's Current Assets

Airport's Debt and Equity
Airport's Debt and Equity
I have actually did a simple debt / equity table, please see below.
YTL and Airport Net Debt / Equity

Assuming the project is won at RM 5 billion, whose balance sheet actually looks better? Look at the lower portion. YTL's net debt / equity of 1.30x vs Airport's net debt / equity of 0.64x assuming it uses debt financing to fully finance its bid. YTL's way above gearing of more than 1 vs Airport's gearing of below 1. So who is actually having a stronger balance sheet here?
Of course I may not be agreeable for Airport to bid for a project which it owns only 20% especially in London (wonder why more Malaysian companies go London???). To me, Airport should just concentrate on KLIA2 as there is quite a bit of cashflow from there coming in near future and what it needs to do first is to CONCENTRATE.
And of course, you can say that I am bias as I have Airport shares while I do not have YTL - but numbers don't lie. Keep saying you are cash rich is not going to change the numbers! Good enough bankers (and there are many) will definitely know how to read balance sheet and future cashflows.

To proof my point, do a search on Google, "YTL cash". You will see many misleading articles.

-----------------------------
Note: Sorry, for yesterday's article, I should have used net debt / equity in which net debt is (total debt - total cash and cash equivalent). In any case, the balance sheet for Airport is definitely in better condition.

39 comments:

hng said...

There is news confirming joint bid by YTLCorp & M. Airport for the London's Stansted Airport, and argue that the logical place to park this investment is in YTL Power, which has a cash reserve of RM10 billion. This scenario has the distinct disadvantage of raising the value of YTL Power; thus making it more costly for YTLCorp to privatize. Good for YTL Power but not so good for the YTL corp.

Therefore, i think divestment in YTLP power first is the only solution. Once YTLP sell its power plant to 1MDB, cash proceed can use as special dividend payout, which YTLcorp as major shareholder is a main beneficial and can use these fresh cash for acquisition eg. Stansted Airport. These will increasing YTL corp value, appeal and reduce YTLP dependency. After which, by then privatization kick in, through share swap, privatize YTLP later.

Again some may argue then the viability of YTLP sell its power plant to IMBD since its concessionaire is expire in next 2year and doubt capability of 1MDB financial to able keep acquire power plant

Recall 1MDB acquire Genting Sanyen before its granted extension. The renewal concessionaire only announce after the deal concluded. Furthermore, in the earlier acquisition of another 1st generation IPP. the Powertek , there is still yet to grant extension. Thus, If 1MDB buy YTLP power plant, its just matter of time like Powertek, all together will grant extension afterall 1MDB is wholly own by Gov.

As Gov back institution, it able to fund acquisition with cheaper borrowing capital due to market high liquidity and the fact it guarantee by Gov. 1MDB off course could raise further capital via IPO, to increase its corporate profile and facilitate and meet its expansion mode of growth in future.


Therefore, I still opine that to build new power plant, it cost a lot more and take at least 4year to complete. It make sense to fully utilize existing power plant to continue generate power especial to those well keep plant. YTLP have excellent record in maintenance and upgrading it power generator. According to its annual report, YTLP have replace its Paka power station with newly installed latest model, the most efficient HR3 Burners in all its Gas turbines. Overall plant availability keep at optimal level with 95.15% at Paka Power Station and 99.05% at Pasir Gudang Power Station. The combined power production by both station was 102.81% of the scheduled qualities.

Thus, despite the concessionaire is going to expire in 2 year time, these well keep power plant still be able to keep continue generating power supply. If IMDB to acquire these power assets, even have to pay full value for it, is still worth of investing as the readily available power plant will shorten time to rebuild and get rid execution risk.

CrabGrill said...

Please don't forget the huge "goodwill" that constitute's MAHB's asset. Take this out you will see a very different picture of debt/equity ratio.

hng said...

It is common for company to gear up to acquire assets back regulated business, which have steady cash flow.

Company will used 10:90 or 20:80 equity/debt to secure funding for acquisition.

Much of the loan/bond/borrowing is park under YTLP instead of YTL, but is consolidate in YTL book due to YTLP is subsidiary of YTLcorp. Most of loan secure is is back by assets acquire last few year, namely PowerSeraya and Wesses Water. Cash flow from these regulate assets will first used to pay interest and principal of the loan, and balance only recognize as profit. As long as these two assets generate positive cash flow, YTLP balance sheet will be able to keep improving as debt will reducing gradually, while equity is increasing in tandem.

felicity said...

Hi Crab Grill

The intangible assets the bulk of it is concession assets which is the land provided under concession by government which under accounting it has to allocate as intangible assets - much different from goodwill. Look at PLUS balance sheet, it would have a huge concession assets.

As for the YTL's balance sheet, I am sure that it will be able to take up the project, but the paragraphs provided is totally misleading. Cash rich is balanced with high debts as for the lack of cash is misleading for Airports.

CrabGrill said...

Hi Felice,

You're right.

Maybe a little bit out of topic but I would rather invest my money in low gearing and smaller businesses which have the same fair price to current price ratio. I would not be interested in these elephants until I have many millions to invest. There are many projects to study, a lot of risks to calculate, a lot of things to know...... It is a more difficult subject, and if only number of "A" counts, then I will pick an easier one.

富升 said...

HI,
Base on the comment, seem that YTL is bit dangerous stock because of high borrowing, am I coorect?

hoseadavids said...

YTL's debt = 29 Billion

One year's net profit = 1 Billion

It would take 29 years for YTL to pay off its debt.

That is a very long time.

felicity said...

I do not think YTL is a dangerous stock but the balance sheet is not the actual situation as in many times I read news articles about YTL. It has cash but those cash are actually from the debts.

Its future cashflows are definitely able to cover the debt expenses and repayment especially for utility business which have more consistent cash inflow.
This article, I am just trying to highlight what many times mentioned are not quite true.

hoseadavids said...

"Its future cashflows are definitely able to cover the debt expenses and repayment.."

What makes you say so?

Value Investor said...

Would like to share my 2-sen worth on the issue of using debt instead of equity/capital in large cap companies.

In the case of YTL Corp, based on their 2012 Annual Report (pages 191-193), the biggest portion of its debt comprises of term loans amounted to RM12.595 Billion but the effective interest rates for the term loans is only 0.72% !!

As such, it makes real commercial sense for YTL to borrow at 0.72% and obtain returns many times more than its cost of borrowings.

hng said...

felicity

Lets assume we have 1m, and wanna to buy shop lot that cost 2.5m at one of the famous shopping mall, which already tenanted and command 8% steady and consistent return pa. We not need to used up our 1m and borrow 2 m from bank to buy these assets. What can we do is adopt equity/debt option, 20/80, in which we come out with 20% down payment and secure another 80% loan at interest cost 5% for 25year. So, it we analyze balance sheet

Non current asset: 2.5m (shop lot)
Current assets: 500k (cash balance)+ 200K (rental income)

Non current Liability: 2m (loan)
Current liability: 125k (interest cost) + 50k (principal repayment)

Based on the above scenario, you still consider cash rich as yiu still have balance cash balance of 500k, while earning consistent return of 25k net profit. In 10year time, balance sheet will be even better as we probably have pay off 30% debt, recover back all initial capital


felicity said...

I see passion - one side pro another side against. Great! :)

Anyway, I would think the term cash rich is relative. Usually though the benchmark for whether the company has a healthy debt position is below 1x gearing.

And wouldn't it be so that cash rich is for companies that has cash but little debt or almost no debt in comparison to their liquid assets. Let me tell you one cash rich company - Apple Co. Haha more than USD100billion cash with no debt. Other companies cash rich - Microsoft, Carlsberg Malaysia, Dutch Lady even Jobstreet relative to its size.

As for YTL mainly being a utility company (bulk of it from YTL Power), past records have shown that it does have decently steady income (cashflow). The businesses that it is in most of them have quite steady income flow.

I have no doubt that YTL is still growing but with it going into businesses - utilities, a person is buying a utility stock which means steadier income flow but not exciting growth prospects in my opinion. But still good steady income.

Yes, a big bulk of the loans are in the lower part of the rates below 1% but they are foreign denominated. The rates are great but it cannot go on to gear much further.

Gearing much higher is just like you have an annual income of RM200,000 but have property loan exposure of RM2 million. One day, the bank is going to figure out and say what if one day you lose your job or you get sick etc.

Corporations have infinite life but still can't just continue to gear.

Cheers

hoseadavids said...

Value Investor said:

"In the case of YTL Corp, based on their 2012 Annual Report (pages 191-193), the biggest portion of its debt comprises of term loans amounted to RM12.595 Billion but the effective interest rates for the term loans is only 0.72% !! "

Think about it.
Somebody somewhere in this world is willing to borrow you RM12.595 Billion at a rate of 0.72%.

Do you believe it?

If I got a loan of 12.595 Billion at a rate of 0.72%, I would keep it in fixed deposit and earn 2.28%.

If you are really serious about knowing the interest rate, you should read YTL 2012 annual report page 158 onwards.

hoseadavids said...

Why would anyone lend you 12.595 Billion and earn 0.72% instead of putting them in fixed deposit and earn 3% ??

Think about it.

hoseadavids said...

Somebody, somewhere who lend you RM12.595 Billion at a rate of 0.72% is losing money each year due to inflation.

Value Investor said...

@hoseadavids,

Read the details of the term loans on pages 194-195 of YTLC's 2012 Annual Report.

Bulk of the terms loans in foreign currencies especially GBP and SGD with rates around 1% but short term in nature.

There are also Japanese Yen loans. We all know that interest rates in Japan is practically zero to 0.25%.

hoseadavids said...

YTL 2012 Annual Report:

Pg. 57
Finance cost = 1000 million or 1 billion

Pg. 88
Interest expense
1. Bonds = 650.5 million
2. Borrowings = 403.6 million

Calculate yourself to see if you get 0.72% or not?

Value Investor said...

YTLC's term loan of RM12.595 Billion that enjoyed an average effective rate of 0.72% constitute about 78% of its total borrowings of RM16.168 Billion (Long term and Short term). Bonds outstanding is RM13.034 Billion. Total borrowing = RM29.2 Billion.

Details are in pages 191-195 of the 2012 Annual Report.

Market Watcher said...

Are we talking about YTL, YTLP or YTLC? lol

David said...

Wow... heated discussion. Awesome!

@hoseadavids - just sharing my p.o.v.:

When i assess how well a company can payoff its debts, i use the operating cashflow (OCF) instead of net profit.

Now, YTL(Corp)'s OCF stands approx. RM3bil annually since Y2010. It has cash + eqv at around RM14bil while total liabilities (current + long term) of RM37bil.

So the net liabilities is 37-14 = RM23bil. Divide that by RM3bil means theoretically it would take less than 8 years for YTL to pay off all its debts, which is still not too bad.

That said, my reply is for the sake of discussion only. I have no vested interest in YTL(Corp). I am invested only in the subsidiary YTLPOWR.

hoseadavids said...

8 years? Hmm...

Cash from operation = 3 bil.

Annual capital expenditure = 1.5 bil.

Dividend payout = 0.5 bil.

Balance = 1 bil.

As per your argument, net lia = 23 bil.

23/1 = 23 years.

MY Investor said...

`I'm loving this discussion!

Market Watcher said...

Yup! I think there's also the angle of natural hedging that comes from this highly geared situation.

Check out my rationale

Market Watcher said...

Marketcsi.blogspot.com

:)

hng said...

So, can we come to conclusion, YTLP business model is

Low risk: steady and consistent earning derive from regulated assets and concessionaire base.

Low return: earning derived have to pay debt first (loan/bond/interest expense), after then balance recognized as profit.

However, low risk and low return can be compromised or mitigated by

1. Political risk, expiration of concessionaire, non-renewal risk and general business risk like high input fuel cost

2. Secure loan/loan/bank borrowing back by regulated/concessionaire based to enjoy most privilege interest cost. Localize borrowing to reduce foreign currency exchange risk

Market Watcher said...

Current value is priced for the boring part of YTLP namely their regulated assets.

@ approx 10x PE they failed to consider the upside from possible catalyst.

1. Disposal/renewal of IPP?
2. Jordan shale gas
3. Yes turnaround

It's really an out of favour stock at the moment I reckon. Sentiment is against it, perhaps its best time to load up?

hng said...

Market Watcher

Comparing YTLP and WB, i think WB is more worth of investing. Current market give zero premium, zero intrinsic value and zero time value.

I think at least 5 potential catalysts to be able to spur share price

1. Disposal/extension of IPP
2. Privatize through share swap
3. Yes turnaround
4. Jordan shale gas
5. New regulate assets acquisition, London Airport

If anyone of these catalyst materialize, YTLP will subject to re-rating and WB will worth much more in turn of percentage gain

Market Watcher said...

@hng - I pretty much agree except for the privatisation exercise.

If I want YTL's share, I will go buy YTL's share. In YTL Cement's case, the share swap was a shit deal for the minority shareholder.

Look at the most recent quarterly report, YTLC's income went up 41%. Imagine the potential upside for them.

YTL's share is being inflated through buyback of approx 600M while YTLP's price deflated through WB discounted disposal.. not the best time for us if they privatise it.

Market Watcher said...

So let's say they privatise.. then the catalyst happen.

@&*$*(!*$ we bought for the upside there, not for privatisation! If they want to get their hands on the YTLP's cashflow - come buy it off us in the market. We don't want no share swap!

hng said...

Market watcher

I think privatize is better for YTLP and WB through share swap with YTL. Assuming share swap at ratio 1:1, based on current share price YTLC: 1.80; YTLP: 1.63: YTLP-WB at 44sen. It imply although just 10% gain in YTLP, but is 34% gain in WB. This is far better than current sideways and unexciting trading pattern.

I personally experience share swap in YTL cement, and gain my first 5D profit on it early last year. Although at first glance, the ratio seem unexciting and disappointing, but YTL Cement swap to YTL corp is based on issue price at RM 1.40, but the market price for YTL was around 1.46-1.48. YTL crop keep aggressively share buyback to support its share and market also view that the share swap is earning enhancer to YTL as it dilute its valuation from PE 14x to 12x, so that after completion, YTL corp become a clear winner, stock price surging and everybody including YTL cement shareholder very happy.

Market Watcher said...

@hng - I wasn't following the YTLC swap too closely but I think this article summarise the problem with a privatisation share swap

http://www.theedgemalaysia.com/in-the-financial-daily/200327-ytl-cement-minorities-stuck-between-a-rock-and-a-hard-place.html

1) No premium offered
2) swap from pure play to conglomerate (with usual discount)
3) Growth story at subsi level..

But I think this is unlikely to happen in YTLP case.

1) Felicity pointed out - they are not stupid to first give out warrant at discount then buy it back
2) they would have to hold EGM, unlike YTLC case where no EGM is hed.

It was great that you made profit in the last privatisation deal, but I think you could've made more if YTLC stayed. It's last quarter earning is up 41%.

No doubt YTL's price went up too - but it's relative to what it could be. Also, my theory is that YTL's share appreciate mainly due to buyback.. not any change in wider market sentiment.

Afterall, their price fell after first consolidated earning announced.

hng said...

Market watcher

Lets do some comment on each query

1) No premium offered
Actually at that time there is some premium as the issue price is at 1.42 (RM 4.50), but the market price is 1.48 (RM4.69), and YTL cement at time also trade at discount 4.30, so that total different is about 39sen different. Off course if YTL offer much better ratio for YTLP is even better.

2) swap from pure play to conglomerate (with usual discount)

No doubt YTL is conglomerate and is holding company, discount in valuation. But in reality, YTL corp trade at higher PE than its YTL cement and YTLP. In addition, if YTL privatize YTLP, it no longer treat as holding company, as it will already have direct exposure to all its main earning division, diversifying it earning base and have much liquidity in the market

3) Growth story at subsi level..

Again, once YTLP is wholly own by YTL corp, earning growth in subsidiary will have direct impact.

4) Felicity pointed out - they are not stupid to first give out warrant at discount then buy it back

I think it is Yeoh family strategy to increase it direct stake in YTLP through these distribution in YTLP-WB. Yeoh family control 49.11% in YTL corp, which in turn control 44.89% in YTLP. so that its effective stake in YTLP is only about 22%, which added it current direct stake in YTLP of 10.23% become total 32.23%. Through YTL-WB offer for sale at 20sen, it liquidize YTLP WB stake and Yeoh family entitle the most of the WB. This enhance its direct controlling in YTLP with much cheaper cost through WB

2) they would have to hold EGM, unlike YTLC case where no EGM is hed

If the share swap at ratio 1:1 , it is certain both YTL and YTLP must hold EGM. Both company share some major shareholder: EPF have stake YTL 8% stake and 8.9% in YTLP. Deutsche bank Ag Singapore have 10.12% in YTL, although no stake in YTLP but it have 10.1% in YTLP WB, which can be convertible if needed. If share swap done at attractive ratio, getting these shareholder approval should have least problem. After all, YTL and YTLP dividend yield have reach almost equilibrium at about 2.2%

hng said...

Market watcher

Assume one still hold share resulting from share swap from YTL cement to YTL corp, it will hold 3.17 share x current YTL corp share at 1.79 = 5.67 (26% gain)

it also enable to enjoy cash dividend of 2 + 1sen (3sen), share dividend 1:15 (38sen),entitle to WB at 20sen based on 1:15 ratio (5sen) = totaling 46sen (10.2% gain)

Remark: YTL corp at 1.79; YTLP-WB at 44sen

All in all, YTL cement must trade above 6.13 in order to outpace it.

hng said...

Market Watcher

YTL corp indeed aggressively share buyback and have accumulate so far 3.47%. I think it is management strategy to buyback share through open market and later distribute back to shareholder via share dividend, which is indirect way to increase major shareholder stake in the company and also absorb excess share in open market due to exchanging of 5 years Guaranteed Exchangeable Bonds 2010/2015 and selling from EPF

Market Watcher said...

Hi Hng,

I've dedicated my latest blog rant to you :)

I am vested in WB - but I think there's some CG issue with YTL.

I like the value and the initiative, but I see the privatisation of YTLC as a raw deal to its minority. Check out my reference to La Farge.

Assuming similar appreciation (48%) - YTLC should trade at 6.66.

I am not against privatisation, but at a value akin to its normalised value of approx 13x PE preferably with premium slap on top of it.

Elizabeth J. Neal said...

Read below where I pulled out a section from The Star's reporting: fifteen minute payday loans

mohamend loan said...


Do you need a Loan?
Are you looking for Finance?
Are you looking for a Loan to enlarge your business?
I think you have come to the right place.
We offer Loans atlow interest rate.
Interested people should please contact us on
For immediate response to your application, Kindly
reply to this emails below only.
mohamendloanservice@gmail.com

Please, do provide us with the Following information if interested.
1) Full Name:.........
2) Gender:.........
3) Loan Amount Needed:.........
4) Loan Duration:.........
5) Country:.........
6) Home Address:.........
7) Mobile Number:.........
8)Monthly Income:.....................
9)Occupation:...........................
)Which site did you here about us.....................
Thanks and Best Regards.
mohamendloanservice@gmail.com

www.mohammedloanserviceplc.com

osman ahmed said...

Do you need a Loan?
Are you looking for Finance?
Are you looking for a Loan to enlarge your business?
I think you have come to the right place.
We offer Loans atlow interest rate.
Interested people should please contact us on
For immediate response to your application, Kindly
reply to this emails below only.
(easyloanoffer1@gmail.com)

Please, do provide us with the Following information if interested.
1) Full Name:.........
2) Gender:.........
3) Loan Amount Needed:.........
4) Loan Duration:.........
5) Country:.........
6) Home Address:.........
7) Mobile Number:.........
8)Monthly Income:.....................
9)Occupation:...........................
)Which site did you here about us.....................
Thanks and Best Regards.
(easyloanoffer1@gmail.com)

www.(easyloanoffer1@gmail.com)

Quick Business Loan said...
This comment has been removed by a blog administrator.