YTLPOWER 2Q Results

Latest results show YTLPOWER has improved on their Quarter to Quarter profit from RM230 mil previously to RM250 mil. As a result EPS improved by about 10% to 4.03 sens as compared to 3.93 sens previously.

It's not really clear if we tried to compared to the same quarter last year as this year Power Seraya revenues has been consolidated into the report. With revenue ballooning from about RM4 bil/year to about RM6 bil in 6 months. Net profits however remained elusive. Looking into segmental profits shows a bright spot, as previously Power Seraya was weak in performance this quarter however it managed to report a profit before tax in line with expectations. At RM128 mil this quarter in profits, its is more than 100% higher than RM59 mil PBT in the previous quarter. If we compared the yearly profits of Power Seraya before the takeover, their record net profit was about SGD218 mil. That if converted is about RM523 mil net profit, which is by average RM130 mil/quarter. As such it is only expected that Power Seraya delivers the similar results and possibly better after the takeover.

Other segments such as local electricity generation increased by RM10 mil to RM93 mil but water/sewerage business in the UK reported lower profits of RM141 mil compared to RM159 mil previously. With the British Pound being hammered lower this quarter, their UK operations are expected to report lower earnings in translation to RM. Last quarter also saw the complete subscription of its WA warrants that were due in January 2010. Almost the entire 750 mil warrants left was subscribe at RM1.19 per share, which would net YTLPOWER about RM890 mil in cash. Under their cash flow statements, their bank balance boosted by financing activities has reached almost RM8 bil. That's a lot of cash they are sitting on, almost like before they
acquired Power Seraya. Unfortunately, this year will see them spending it on servicing their expiring bond obligations.

I noticed something odd when the reported number of ordinary shares stands currently at 6,217,620,000 shares. As I wrote earlier, their report stated that almost the entire WA warrants which when subscribe will be converted into ordinary shares is about 750 mil. Their previous quarter report stated that there was 5,876,160,000 shares then.

6,217,620,000 - 5,876,160,000 = 341,460,000 only

So where did the other 408 mil over shares went from the 750 mil warrants that was converted? What happens if we add the 400mil shares into the EPS calculations?

RM250 mil / 6,625,620,000 = 3.77 sens as EPS

Comparatively the diluted EPS of 3.77 sens is much lower than previous 3.93 sens. This does not look very promising at all. But at least for now, there is no more looming massive dilution of EPS expected compared to few quarters back when the WA conversions were imminent.

The current poor performance of their reported quarterly profits has more to do with their translation of profits from GBP to RM. Since the financial crisis, the GBP has been severely weakened against the RM and has not recovered to previous levels. Past 2 quarters, reported segmental numbers from their water business also is considerably weak compared to FYE2009 numbers.

Worries for this stock include their very high gearing of 70% for their UK operations, depreciating GBP against the RM, under-performing Power Seraya after consolidation, late announcements in their report, un-clear margins for their oil trading/swapping and deteriorating EPS after full dilution.

Good prospects is the recovering UK economy which will boost earnings and well as future appreciating GBP, Power Seraya growing contribution after their 800MW power plant commissioned and possible income from WiMaX telecommunications venture which has no sign of capital expense so far.