Published on 18 Jan 2023.
RAM Ratings has revised YTL Power International Berhad’s (YTLPI or the Group) long-term rating outlook to stable from negative while concurrently reaffirming the AA1 ratings of its RM5 bil Medium-Term Notes Programme (2011/2036) and RM2.5 bil Sukuk Murabahah Facility (2017/2027).
The Group is a diversified conglomerate, operating on two continents and in multiple business lines, with a solid track record in concession businesses. The outlook revision reflects the turnaround of YTLPI’s power generation business in Singapore which led to improved earnings diversity, as well as the better than expected dividend paying capacity of its water and sewerage segment. Its financial metrics outperformed expectations following the successful disposal of YTLPI’s stake in ElectraNet Pty Ltd, which we did not factor in previously. The sale substantially boosted cash reserves and unexpectedly moderated the Group’s debt level. Going forward, YTLPI’s operating cashflow (OCF) to net debt cover is projected to be above 0.40 times, supportive of the AA1 ratings. YTLPI’s company-level OCF to net debt coverage ratio came in at 0.64 times in FY June 2022 (FY June 2021: 0.51 times), exceeding our expectations of 0.14 times.
Note: Figures above the bars indicate the respective years’ pre-tax profit.
The Group’s pre-tax profit more than doubled to RM1.37 bil in FY June 2022, largely anchored by the gain on the disposal of ElectraNet and the stronger earnings of its power generation business in Singapore. Looking ahead, we expect continued improvement in the power generation business (owing to improved efficiency after the integration of its newly acquired Tuaspring plant as well as easing industry reserve margin) and the relatively sustained earnings of its UK water and sewerage segment to support core earnings growth.
The Group’s ability to monetise assets and investments to support post-pandemic earnings recovery supports the benefit given to its robust financial flexibility in our assessment. The divestment of its stake in ElectraNet at a gain of RM1.3 bil in FY June 2022 is testament to management’s investment capabilities and value creation. The disposal allows capital to be redeployed to new businesses/investments and curtail added leverage risk.
The Group’s liquidity profile stayed superior, backed by RM6.83 bil of unencumbered cash reserves as at end-June 2022. The ratings consider the Group’s strong financial flexibility, with a sizeable net realisable asset value (RNAV) of around RM30 bil against company-level debts of RM7.52 bil as at the same date. Potentially weighing on YTLPI’s financial metrics is the sizeable capital outlay for new investments and not accompanied by immediate earnings or a dividend uplift. While this will be revisited as more details become available, the Group’s proven investment capabilities and risk appetite track record are reassuring from a credit perspective.
Karin Koh, CFA
(603) 3385 2508
Davinder Kaur Gill
(603) 3385 2525
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Ratings on YTL Power International Berhad