This article first appeared in The Edge Malaysia Weekly on February 3, 2025 - February 9, 2025

THE idiom “it never rains but it pours” aptly describes the situation that YTL Power International Bhd (KL:YTLPOWR) and its parent YTL Corp Bhd (KL:YTL) are in now.

In two weeks, roughly RM11.3 billion has been wiped off YTL Power’s market capitalisation while YTL Corp’s market cap is down by RM9.28 billion.

This is a sharp contrast to exactly 12 months ago when investors were snapping up shares in YTL Power and YTL Corp, pushing the two stocks to record highs of RM5.29 and RM3.795 respectively. And the duo were included as the FBM KLCI component stocks. Their partnership with Nvidia Corp made them a good proxy to the enormous potential of the artificial intelligence (AI) chipmaker.

Selling pressure began after the announcement of fundraising exercises via proposed bonus issues of warrants by both YTL Power and YTL Corp.

Like any form of cash call, the YTL group’s proposal did not go down well with the market, even though investment analysts generally view the exercise positively.

Analysts see this as an opportunity for shareholders to accumulate more shares at sharply below market prices. Furthermore, they do not need to fork out cash immediately, given the warrants have a three-year tenure.

However, judging from the big drop in share prices, shareholders disagree with the investment analysts, especialy with the cash call being a surprising move.

Given that the warrants will be non-tradable derivatives, some institutional funds have no choice but to sell as their investment mandates do not permit unlisted investments in their portfolio.

“Even if some funds have the mandate to hold unlisted warrants, their auditors may have issues with the valuation of the derivatives that don’t have market volume,” says the chief investment officer of a foreign-based asset management company.

“Shareholders are forced to exercise the warrants, otherwise their shareholding will get diluted since the warrants are non-tradable … no one had seen this coming.”

Another institutional investor comments that although shareholders have three years to exercise the warrants, this isn’t necessarily advantageous due to looming uncertainties.

Moreover, he adds that the discounts have narrowed after the recent sharp fall in the share prices of both YTL Power and YTL Corp, making the free warrants less attractive than they were a week ago before the heavy sell-off.

To recap, YTL Power announced a proposed bonus issue of warrants on the basis of one warrant for every five existing shares on Jan 23.

The exercise price of the YTL Power warrants has been fixed at RM2.45 — a 44% discount to its five-day volume weighted average market price at the time of the announcement.

Being the controlling shareholder of YTL Power with 54.84% interest, YTL Corp also proposed a similar exercise to raise fresh funds for the exercise of the YTL Power warrants. The exercise price of the YTL Corp warrant is pegged at RM1.50.

However, discounts have narrowed to about 22% after the drop in share prices.

While investors were pondering if the plummet in share price has made YTL Power a good bargain, a fresh selloff began, triggered by the release of an AI model by China-based DeepSeek in January, and another called Qwen 2.5-Max by Alibaba on the first day of Chinese New Year.

Coincidentally, the releases of these AI models came shortly after the more stringent control on AI chip exports by the US.

The emergence of DeepSeek and Qwen 2.5 has shown the world, including investors, that a low-cost development model that does not need the most advanced computer chips can perform better than existing technology.

Some quarters believe that the low-cost development model could shape a new industry landscape, raising the question of the demand for Nvidia’s advanced technology chips.

The fear of disruption caused by DeepSeek sent Nvidia’s share price on a steep and slippery downward slope. Some US$600 billion evaporated in a single day from Nvidia’s market capitalisation last Monday. This is the biggest single-day fall for any US-listed company in history, according to CNBC.

Strong ripple effects hit Bursa Malaysia too. YTL Power, which is in the midst of building a data centre equipped with Nvidia’s chips, was among the selling targets.

“All these (cash calls and DeepSeek) happened at a time when investors were expecting fresh catalysts to sustain the rally in YTL Power’s share price. The timing isn’t great at all for YTL Power.

“They (YTL Power) need to reveal more details about the data centre venture, for instance, how many takers and who they are, to convince investors of the viability of the project,” says a former equity strategist at a foreign broking house.

He believes that investors are unlikely to bottom fish anytime soon, as DeepSeek and Qwen seem to have pushed all the AI proxy stocks into uncharted territory.

“There will be ongoing debates over whether DeepSeek is workable and whether there will be an oversupply of data centres and AI chips in the future. There will be lots of noise.

“There is no point going against the wave, especially since uncertainties are expected to heighten in the near term,” he says, cautioning that newly sworn-in US President Donald Trump’s tariff policies will remain a wild card — something that does not augur well for the equity markets.

Due to the festival holidays, most investment analysts have yet to issue their latest view on YTL Power, which was a “screaming buy”. JPMorgan is the only “sell” call with target price of RM3.31.

Kenanga Research, however, told its clients that the current share price has fully discounted YTL Power’s data centre venture, meaning that last Friday’s closing of RM3.13 attached zero value to the new venture.

According to Kenanga Research, to factor in the full brunt of the dilution on the warrant exercise, YTL Power’s target price (without its data centre business) would be RM3.45.

Nonetheless, the research house, which maintains its “buy” recommendation, is of the view that YTL Power will not take the risk of building a data centre without firm takers.

“In fact, it is also expected to be able to tailor the chip requirements to the end-user needs, whether it be the latest state-of-the-art chips or otherwise,” wrote Kenanga Research in its note dated Jan 28.

YTL Power, an Nvidia cloud partner, is slated to be one of the earliest to be receiving the state-of-the-art GB200 chip, according to Kenanga Research.

The company which has a portfolio of utility assets is trading at PER of 8.69 times currently below its five-year average of 16.5 times. Will there be any takers? 

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