‘YTL Power can expect attractive returns if it wins S’pore deal’

PETALING JAYA: YTL Power International Bhd, which has been shortlisted to bid for Singapore’s fifth water desalination plant, is expected to benefit in terms of attractive returns and lower risk venture if it wins the bid.
According to MIDF Research, the project value might come up to about S$380 million (RM1.19 billion) based on past project winners while offtake by Singapore’s Public Utilities Board (PUB) will lower earnings risks.
“Hyflux’s Tuaspring plant (commercial operation started in 2013 under a similar design, build, own and operate contract) has a project value of S$890 million, which translates into circa S$2,794/cu m in capex. Assuming similar cost for the winning bid, the fifth plant (which has a smaller capacity) might fetch a contract value of around S$383 million,” it said in its report yesterday.
“Hyflux’s Tuaspring plant was estimated to generate an equity IRR in the low teens over a similar concession period of 25 years; considerably attractive relative to Power Seraya’s existing power generation business, which is hit by oversupply. A concession and offtake by PUB lowers the project’s risk profile and should be positive for Power Seraya, if successful,” it added.
YTL Power via Power Seraya is one of the larger players in Singapore power generation plants located at Jurong Island. It is also involved in providing other services such as steam supply, natural gas supply, fuel oil storage tank leasing and water production via reverse osmosis desalination for its own use and for sale to industrial and commercial customers.
However, the division has seen earnings shrink given oversupply in the power generation market. Power Seraya now contributes about 19% to group earnings.
MIDF Research noted that desalinated water is Singapore’s fourth water source besides water from local catchments, imported water from Johor and NEWater (high-grade reclaimed water).
“Other water desalination plants already in operation are the SingSpring plant (130,000 cu m/day) and the Tuaspring plant (318,500 cu m/day – built and operated by Hyflux). A third plant in Tuas is to be completed this year while the fourth plant in Marina East is expected to be ready by 2020.
“The two operational plants meet up to 25% of Singapore’s current water demand and PUB expects desalinated water to account for 30% by 2060,” it said.
The fifth plant is expected to be located at Jurong Island under a design, build, own and operate contract with a capacity of 137,000 cu m/day, to be completed by 2020. PUB will be the offtaker under a 25-year concession.
Besides YTL Power, other shortlisted applicants include Keppel Infrastructure, Sembcorp Utilities and Tuas Power.
MIDF Research maintained its “neutral” call on the stock with an unchanged target price of RM1.40, pending the outcome of the bids.
“Near-term earnings outlook is tough, but dividend yields are attractive at 6-7% (FY17F-18F),” it said.