KUALA LUMPUR: YTL Power International Bhd's acquisition of 18.87 per cent of Ranhill Utilities Bhd is right up Tan Sri (Sir) Francis Yeoh's alley, who has consistently shown a keen eye for regulated assets.
Industry observers said the acquisition is just the tip of the iceberg.
"Yeoh has several plans in the works. We believe he may increase YTL Power's stake in Ranhill Utilities because the stock is trading at a discount to its RM1.20 listing price.
"With a healthy cash pile of about RM9 billion, YTL Power may snap up a controlling block in Ranhill Utilities. However, this is subject to whether Ranhill Group's current major shareholder Tan Sri Hamdan Mohamad wishes to reduce his stake in the company," a source told Business Times.
The source said Yeoh is keen as Ranhill Utilities owns the exclusive rights to Johor's water supply and has a stake in the Sabah power sector.
Ranhill Utilities is also actively seeking to expand its presence in the renewable energy (RE) sector through its soon-to-be-operational 50 MW large-scale solar (LSS4) plant in Bidor, Perak.
YTL Power, meanwhile, is building its presence in Johor and RE via the upcoming Phase 1 of its 72 MW data centre and its 500 MW solar farm in Kulai.
According to the source, Yeoh is looking to expand YTL Corp Bhd by acquiring more regulated assets not only in Malaysia but also in overseas markets that he is familiar with.
YTL Corp is well-known for investing in high-quality assets that increase in value over time. This includes Wessex Waters Services Ltd's regulated assets in the United Kingdom, prime land in Kuala Lumpur under YTL Land and the Niseko landbank (1,550 acres).
"I believe these three assets alone will add around RM60 billion to YTL Corp's valuation over years. If YTL Corp buys more good assets at low prices along the way, a valuation of over RM150 billion is not out of the question," he said.
YTL Corp is the listed parent of three publicly traded units: YTL Power, Malayan Cement Bhd, and YTL Hospitality REIT.
The four firms boast a combined market value of about RM42 billion based on the current share price.
For the fiscal year ended June 30, 2023 (FY 2023), YTL Corp's net profit surged 42 per cent to RM2.05 billion, bolstered by higher pricing-driven profits at its utilities business and a 22 per cent rise in revenue to RM29.51 billion (FY 2022: RM24.24 billion).
The majority of YTL Corp's revenue comes from its utilities, cement and construction businesses in Malaysia, Singapore, where it operates the 3,100 megawatt (MW) YTL PowerSeraya Pte Ltd through subsidiaries, and the United Kingdom, where it owns water and sewage provider Wessex Water Ltd.
In Malaysia, YTL Power owns 60 per cent of YTL Communications Sdn Bhd, the Yes 5G operator, which is building a 500 MW solar power plant in Kulai, Johor.
YTL Power became a significant shareholder of Ranhill Utilities after acquiring 243.3 million shares, or 18.87 per cent of the latter, which is still below the 20 per cent threshold.
Ranhill's Hamdan has been in control of Ranhill Utilities since it took over Symphony House Bhd's listing status in December 2015.
As of September 13, Hamdan held a direct and indirect shareholding of 31.42 per cent in the Ranhill Group through its water and electricity concession assets.
According to Ranhill's 2022 annual report, private equity firm TAEL Management Co owns the next largest block of shares, amounting to 18.87 per cent.
YTL Power purchased a block of Ranhill Utilities shares from TAEL last week. Based on the 58 sen per share price, TAEL is estimated to have received RM140 million.
After selling the stake to YTL Power, TAEL now owns less than 2.0 per cent of Ranhill Utilities.
Following YTL Power's acquisition, Ranhill Utilities' share price rose 34.5 per cent to 78 sen in just two days, valuing the company at RM1.02 billion.
According to CGS-CIMB Research, while the acquisition price is about three times enterprise value/earnings before interest, tax, depreciation, and amortisation, with a free cash flow yield of 12 per cent, the key challenge for YTL Power may be to increase its stake meaningfully.