construction of a 554 megawatt oil shale fired power generating project in

Construction of a 554 megawatt oil shale fired power

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construction of a 554-megawatt oil shale fired power generating project in Jordan and a 2 × 660 MW coal-fired power project in Java, Indonesia. The total capital expenditure for these projects is 4.8 billion USD, 2.7 billion USD for oil shale fired power project in Jordan and 2.1 billion USD for power project in Indonesia. 23 Investment in these projects will strengthen the company’s ability to generate more revenue and able to diversify its business into several countries. However, the huge amount of capital expenditure may affect the company’s ability in paying dividends to the shareholders. 24 The share of YTL Power has a low beta, and its share price has remains stagnant around RM1.40 for the past few years, therefore investors will not aim for a capital gain in this share but to receive dividend as a compensation for their investment. By referring to the capital gain and dividend yield, the dividend yield is 7.30% while the capital gain is only 3.65%. The attractiveness of YTL Power shares will decrease if the heavy capital expenditure affects the ability to pay dividend to the shareholders and investor may want to find a new target for a higher return. In addition, the company expect that these two projects will only be able to start contributing to the company revenue after the second half of financial year 2021. 23 . “YTL Power AGM Summary 2016,” YTL Power International Berhad. accessed April 23, 2018, %20Power-AGM_Summary2016.pdf. 24 Kana, Ganeshwaran, “YTL Power Seen Delivering Lower Dividend Payout,” The Star Online , August 1, 2017, - seen-delivering-lower-dividend-payout/.
These are all long-term projects, but shareholders will not have the patience to hold the share for several years. This again decrease the attractiveness of YTL Power shares, as this results in the share price only move up 5 sen from RM1.37 to RM1.42 during the whole financial year. This can be interpreted that there is lack of demand for YTL Power shares as the potential return is not high because it lacks growth catalyst in a short and medium term. However, there is also no drop in the share price, because some investors may hope that the management will declare a RM0.10 dividend payment in the next financial year which is approximately to a 7.04% dividend yield based on the final closing price. A 7.04% dividend yield is considered a good return as it is better than the fixed deposit rate in banks.
3.0 Cost of Capital 3.1 Cost of Equity 3.1.1 Capital Asset Pricing Model The formula for the capital asset pricing model is: r = r f + β ( r m r f ) The return on equity is determined by the risk premium ( r m r f ), beta of the stock ( β ), and the risk-free rate ( r f ). Beta is the measure of systematic risk and volatility of a stock compared to the overall stock market.

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