A Look At The Fair Value Of YTL Power International Berhad (KLSE:YTLPOWR)

Yahoo

15-06-2025

YTL Power International Berhad's estimated fair value is RM3.11 based on 2 Stage Free Cash Flow to Equity
Current share price of RM3.70 suggests YTL Power International Berhad is potentially trading close to its fair value
Our fair value estimate is 30% lower than YTL Power International Berhad's analyst price target of RM4.41
How far off is YTL Power International Berhad (KLSE:YTLPOWR) from its intrinsic value? Using the most recent financial data, we'll take a look at whether the stock is fairly priced by projecting its future cash flows and then discounting them to today's value. The Discounted Cash Flow (DCF) model is the tool we will apply to do this. It may sound complicated, but actually it is quite simple!
Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.
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We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. To begin with, we have to get estimates of the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
Generally we assume that a dollar today is more valuable than a dollar in the future, so we discount the value of these future cash flows to their estimated value in today's dollars:
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
Levered FCF (MYR, Millions)
-RM3.32b
-RM1.54b
RM1.54b
RM1.65b
RM1.74b
RM1.83b
RM1.92b
RM2.00b
RM2.08b
RM2.17b
Growth Rate Estimate Source
Analyst x6
Analyst x6
Analyst x4
Est @ 6.70%
Est @ 5.78%
Est @ 5.14%
Est @ 4.69%
Est @ 4.38%
Est @ 4.15%
Est @ 4.00%
Present Value (MYR, Millions) Discounted @ 8.4%
-RM3.1k
-RM1.3k
RM1.2k
RM1.2k
RM1.2k
RM1.1k
RM1.1k
RM1.1k
RM1.0k
RM968
("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = RM4.4b
We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 3.6%. We discount the terminal cash flows to today's value at a cost of equity of 8.4%.
Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = RM2.2b× (1 + 3.6%) ÷ (8.4%– 3.6%) = RM47b
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= RM47b÷ ( 1 + 8.4%)10= RM21b
The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is RM26b. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Compared to the current share price of RM3.7, the company appears around fair value at the time of writing. The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent.
We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows. Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at YTL Power International Berhad as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 8.4%, which is based on a levered beta of 0.800. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.
View our latest analysis for YTL Power International Berhad
Strength
No major strengths identified for YTLPOWR.
Weakness
Earnings declined over the past year.
Interest payments on debt are not well covered.
Dividend is low compared to the top 25% of dividend payers in the Integrated Utilities market.
Opportunity
Annual revenue is forecast to grow faster than the Malaysian market.
Good value based on P/E ratio compared to estimated Fair P/E ratio.
Threat
Debt is not well covered by operating cash flow.
Paying a dividend but company has no free cash flows.
Annual earnings are forecast to grow slower than the Malaysian market.
Valuation is only one side of the coin in terms of building your investment thesis, and it ideally won't be the sole piece of analysis you scrutinize for a company. The DCF model is not a perfect stock valuation tool. Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. For YTL Power International Berhad, we've compiled three relevant factors you should further research:
Risks: As an example, we've found 1 warning sign for YTL Power International Berhad that you need to consider before investing here.
Future Earnings: How does YTLPOWR's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.
Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!
PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the KLSE every day. If you want to find the calculation for other stocks just search here.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.