Weakening of pound is temporaly only. The next olympic is at UK. Should see some rally of pound by then.
By the time can trade the warrant B


My two cents.

This post has been edited by darkknight81: Oct 23 2008, 08:15 AM

I have a question. What happens when a warrant price has dissapeared from the radar, meaning to say it has gone to zero and later the mother share rises again from the ashes, does the warrant become valuable again or is it toilet paper for good, meaning to say it has been flushed down the toilet and it is gone forever.

I know that doesn't make sense, but just want to confirm.

I think the minimum is 0.5 cent, it won't fall below that (No one will go to stock exchange and offer to sell their share/ warrant for 0 cent and pay commission etc, right?). Even if someone did that, the warrant will still recover its value if the ordinary share gain back ground.

If anyone is going to sell warrant to me at 0 cent, I will be more than welcome at the receiving end... money come money come...

Thanks for the info.

No, I disagree on this factor (not mean GBP won't rise or plunge), just olympic or not won't be a major factor in determine the currency, economy or stock market. It has to do with macro-economy and external factor. Currency is sensitive to interest rate and economy growth and health of country financial situation. It (olympic) has some stimulus effect but it is not the major driving force.

We had enough previous myth or popular talk of buying China stocks because of Olympics, which I find a lame excuse long before. Sorry no offence.

As long as the warrant has not expired, then yes.

Even at 0.005, it is still not make sense to sell in few lots. 10 lots (x100) x 0.005 = Rm5., minus min commission (Rm8.88 or Rm12 or Rm28 or Rm40), you still ended up with -ve figure. What for?

This post has been edited by cherroy: Oct 23 2008, 11:31 AM

Hehe... I mean 0 cent, then I just pay RM0 for the share/ warrant (but need to pay minimum commission, I think government will have difficulty to calculate stamp duty), why not? So long the warrant not going to expire soon, YTL-WB valid until 2018 I think.

Stop day dreaming... getting into business instead...

Warrant B is good for trading. As the mother share rise 10 sen..Theoretically it will follow.

I have to agree with Cheeroy that the Olympics in UK will not cause any rallying of the pound. If you say it is held in Malaysia maybe or Vietnam, but certainly not UK.

But I still don't get why people are concerned about the GBP depreciating against the RM? I mean we've done the calculation that if the GBP weakens, their liabilities would be lowered as well. Meaning their loan payments/financial costs will be lower which translate to more profit. And since their income and payments are in GBP, they both will negate each other when the figures are converted to RM.

With more than RM10 billion in loans in GBP, wouldn't that be much better?

Well for me, i am more concern on the earnings of the company. If the earnings erroded which means the EPS and DPS will be affected.

Take this scenario

Current liabilities = 500 million (which means they got to settle this amount annually until the loan is fully pay)
Current Asset = 800 million ( which means the net earnings after tax, wages, ...)

So the nett earnings will be 800million - 500 million = 300 million pound. With weakening of pound.

Converted back to RM...Which means the company earnings is less.

Unless you are talking about use the company cash in RM convert to pound to pay for the loan. But i don think it is possible as they need the cash for future acquisition.

---

Added on October 23, 2008, 7:49 pmYTL Power poised for mergers & aquisitions


YTL's Paka Power Station
The Star Online, October 17, 2008

It has large war chest to make move in this time of economic distress

“THE journey continues ...” as the buzzword on YTL Power International Bhd’s 2007 annual report put it.

The group has journeyed to faraway markets for opportunities, enabling it to expand its business to Britain, Australia and Indonesia. That also led it to broaden its business base to include water supply and sewerage services, and power transmission.

It had last made an acquisition many years ago, tending to acquire utility assets only from distressed sellers.

Besides aiming to acquire good assets at relatively low prices, the group also has an excellent track record in managing organic growth of the businesses acquired.

Hence, starting from a business base of two power stations in Malaysia, it expanded that to include water and sewerage services in Britain from which it earns more profits than at its home base.

It reported an operating profit of RM1.4bil from its water and sewerage services division compared with RM483mil from power generation in its financial year ended June 30. This is a group that has made good in growing from its roots in Malaysia.

YTL Power last reported it held gross cash of over RM9bil that it could use to acquire more assets. It would seem obvious that it would make a major acquisition of a utility in this cycle of widespread distress.

It has a large enough war chest for that, and it has waited many years for such times of desolation.

Besides its own internally-generated funds, it had wisely raised US$250mil through an exchangeable bond at a time when credit markets were easy and interest rates were lower. The cash from the bond issue is being held for investments in utility assets.

At this time of credit crunch, it will be difficult to obtain financing for acquisitions even when attractive utility assets are available. Hence, the fund raising ahead of a turn in the credit cycle was an act of foresight.

Berkshire Hathaway Inc, managed by Warren Buffett, is also known to raise funds when terms are easy even when there are no immediate use of the funds.

YTL Power, which has fairly stable earnings from its utility businesses, offers a yield of over 6% and, including distribution of free treasury shares, the yield can be as high as 10%.

When the group makes its move, it can be anticipated that the acquired asset will not only be enhancing to its earnings but also a new base from which it can grow a new asset.


http://www.ytlps.com.my/news/shownews.asp?newsid=41366

Bear in mind, the 6% cash dividend is tax exempted


This post has been edited by darkknight81: Oct 23 2008, 07:49 PM

Seems some of us are very concern about the translation of GBP into RM issue. I took some pains to browse through their annual report to actually look into their treatment of their foreign associate/ subsidiary company. From my understanding, the fluctuation of value due to exchange rate will not directly affecting the income statement. Instead the gain/ loss on fair value will be reflected on the equity in balance sheet. The effect will only be reflected into income statement if that's realized under the financial year.

In short, it means rise or fall of GBP will not have a very material impact on the earning (but it's still significant as the earning of foreign subsidiaries/ associates will be translated with current rate). The changes of fair value for net asset (assets - liabilities) in foreign countries will not be impacting income statement, this is to prevent fluctuation of profit due to currency fluctuation which might not have great impact on the business if they intended to continue to hold the subsidiaries/ associates in longer term (with no visibility to sell them).

Hope my opinion useful. Please correct me if I am wrong.

Usually when things get complicated, I try to use a simpler model to try and understand an issue. Here let's say a business has a shop in malaysia and one shop in U.K. selling sporting goods.

For the year 2006, if shop in malaysia (A) make 140,000 ringgit and shop in U.K. (B) makes 20,000 pounds and the exchange rate is 1 pound to 7 ringgit, then the total profits would be 280,000 ringgit. Being established in Malaysia and being listed here, shareholders want to know the numbers in local currency.

If in 2007 both locations maintain same profits but pound is at the rate of 1 : 6.5

then the total income for the year would be 270,000 ringgit.

If in 2008 both locations continue to maintain same profits in their respective currencies and the pound / ringgit conversion is at 1:6

then the total income for the year would be 260,000 ringgit.

This falling income level will affect investor sentiment and we can expect further fall in the price.

Hopefully an increase in tariffs ( there are some for 2008 - 2010) for the water business will offset some of this currency induced adjustments.

I am maintaining my current position on YTLPOWR-WB, but was lucky to sell quite a bit at 53 and 53.5 some 2 - 3 weeks ago upon noticing this fall in the Pound. Now looking to re enter for what I sold but price is continuing to fall.

The reason we need to look at the asset valuation of the U.K. business is if in the event YTLPOWR is getting to purchase a Mega power plant or water business in Malaysia and let say they want to put down 30 % and obtain financing for the rest, the bankers will evaluate their worldwide assets in Ringgit and the interest rate can be higher or lower depending on the credit risks the banks would face.

Due to the falling asset value obtaining loans or bond issues for that matter would cost more. Even half a sen or one sen more means big difference. That's why it is so important to monitor the currency, especially when 70% of it's assets (rough number) are in Pounds.

I hope not to get this wrong as this counter is my NO.1 choice, still maintaining quite a bit.

Keep up the valuable discussions. We shall continue to learn from one another. Thank you.

Yes, I have read and am trying to understand this as well. To quote the their 2007 audited annual report;

"iii Group companies

The results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

• assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

• income and expenses for each income statement are translated at average exchange rates; and

• all resulting exchange differences are recognised as a separate component of equity

On consolidation, exchange differences arising from the translation of the net investment in foreign operations are taken to shareholders’ equity. When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity are recognised in the income statement as part of the gain or loss on disposal.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity on or after 1 July 2006 are treated as assets
and liabilities of the foreign entity and translated at the closing rate. For acquisition of foreign entities completed prior to
1 July 2006, goodwill and fair value adjustments continued to be recorded at the exchange rate at the respective date of
acquisitions."

Assets and liabilities are quoted at exchange rates at the closing rate at the date of the respective balance sheet means on June 30 every year the exchange rate of that day will be taken to convert the assets and liabilities in whatever currency to RM.

The 2nd point is where our concerns are at. I'm not sure how they average it as quarterly earnings are reported and at the end of the financial year will be added up to present the final value. If the averaging is done at every quarter, that means the currency effects down the year will only be affecting later quarterly reports. The earlier ones are considered done deal and will not be further re-calculated to present a 'present' value profit/loss.

You can refer to page 80 of their 2007 audited annual reports.

Reffering to 2007 audited annual report page 68.

Unrealise gain on foreign exchange was -37730 million


From page 80 the closing rate for GBP against RM was RM 6.9 DURING June 2007.

So base on the GBP this year 2008 which is about RM 6.00. Then that means the balance on asset in Wessex will depreciate. But it is not a major concern for me though.

Where as for the income and expenses for each income statement are translated at average exchange rates; I beliv this year average compare to last year 2007 average exchange rate will definitely lower. As so far you can see GBP has been going weaker against RM. So thats y i mean we can forsee next year earnings from wessex to depreciate.
Which is the issue i most concern on.

Correct me if wrong.

As per my understanding, that means income from Wessex (70% of their profit) will take a hit of approx. 20% (14% of total profit) if GBP is to depreciate by 20% (which is the situation right now); a drop of 14% in profit is deem to be acceptable by most of us I guess (we are going to see drop of >50% or even profit -> loss in coming months for other companies). Profit/ Loss of disposal of acquisition (Wessex) will only recorder after disposal (which is still to far to be foreseeable).

But again, now might not be the best time to hurry into market (even for YTL Power also), they might going further down.

The unrealise gain is a good thing, not a bad thing. Do not be confused by it's negative number.

And for June 2008, it is not RM6.00, it's actually RM6.5114. You can check this under Bank Negara Malaysia website. I check their previous 3 years reports all follow the BNM website on the last day of June for that year. That's their main reference. Website is here.

From what I can gather, I check the website of BNM and also try to cross reference with profit margins of YTLPower and can't seem to find the expected fall in profits due to foreign exchange differences. I mean the GBP has been depreciating against the RM since September 2007 from a high of RM7 = GBP1. So for the past 3 quarters from Sept 2007 to March 2008 which record one of the lowest exchange rates at RM6.20 = GBP 1, which is a 10% drop, the profit margin still remained healthy.

And it recovered somewhat in June 2008 to RM6.51 before going down again to the present level of RM5.73 to a Pound, which is about 18% drop since the high of RM7.00 per Pound.

So if we tried to calculate a 10% drop in currency = 10% drop in profits, we would be wrong in our calculations. I'm not sure myself how to calculate accurately the risks and effects of the currency will have on their profits. But I do know that I rather a 10% drop in their debts which is denominated in GBP rather than 10% increase in revenue. Simply because the debt is 4 times larger than the their annual revenue. So the gain of the greater debt reduction is better than the smaller gain of profit.

This post has been edited by skiddtrader: Oct 26 2008, 06:58 PM

The profit margin can be increase by :

a) Improve efficiency in the production.
b) Cost Cutting

YTL power has always mentioning on improving efficiency. I beliv they have improving their efficiency and bring to higher profit margin but due to the forex exchange lost thats y we cannot see much difference on their profit. Correct me if wrong.

Yes, you are right , the real profit margin , you should look at original currency. Since PL items ( except stocks ) items are translated at average rate, there is no loss or gain resulted. But earnings in ringgits might drop due the weak currency ( IF SALES AND COST EFFICIENCY REMAIN THE SAME )

Balance Sheets items would have gain or loss, due to figures c/f from previous year, reinstating to current year end rate ( balance sheet date ). Mostly affecting the reserves or some other names created in the BS. Again, Investments would be stated at lower of cost/market values.

This post has been edited by SKY 1809: Oct 27 2008, 10:20 AM

For all YTL POWER fans here,
Pound to RM has been on its historical low at RM 5.73 currently. Thinking of buying some pound but don know how to start.

The time line I stated as an example from July 2007 to March 2008 shows their past 3 quarters where the currency was affected by at least 10%. But their profit margin in those 3 quarters improved every quarter.

1st quarter EPS was 4.61 cents, followed by 2nd quarter 4.82 cents then 3rd quarter was 5.25 cents.

2nd quarter earnings improved by 4.5% from 1st quarter, then 3rd quarter improved by 8.9% from 2nd quarter.

Now if you look at the currency exchange the GBP was lowest against the RM in the 3rd quarter where as the 1st quarter was the strongest.

I don't know if the currency exchange rate is directly responsible for such quarterly growth but if you would to compare the lowest exchange quarter which is the 3rd vs. the 1st which had the stronger GBP, while the GBP slided down 10%, the earnings went up by 13.8%. Furthermore, 4th quarter results are almost the same with 3rd quarter when the GBP weaken before climbing back up again to 3rd quarter levels.

1st and 2nd quarter 2008 will most probably show us how affected their profits are with relation to the currency exchange as this quarters has the biggest fluctuation downwards.

Please remember when the GBP strengthens, although revenues will increase, their costs will increase as well. Costs as in financial costs(interest on loans), fixed costs (labour, administration), depreciation of assets etc.

Thanks again for your info Wonder y this will happened

By the way, may i know when 2008 annual report will be out?