Investment Highlights

• Maintain HOLD on YTL Power (YTLP) with an unchanged RNAV-based fair value of RM0.94/share. Our fair value implies an FY20F PE of 15.9x for YTLP.

• YTLP’s 1HFY19 core net profit (excluding impairment of RM70.5mil) was within our forecast but 18.7% below consensus estimates. YTLP’s performance in 2QFY19 was weak. The group’s reported net profit plunged by 43.2% to RM72mil in 2QFY19 from RM126mil in 1QFY19.

• The weak performance in 2QFY19 was mainly due to a RM70.5mil (S$23.4mil) impairment on a receivable in Singapore. Due to this, pre-tax loss of the multi-utilities division (mainly YTL PowerSeraya) widened to RM117.2mil in 2QFY19 from RM15.9mil in 1QFY19.

• Excluding the RM70.5mil impairment, the division’s pre-tax loss would have been RM46.7mil in 2QFY19, which would still be larger than the RM15.9mil recorded in 1QFY19. This was because YTL PowerSeraya had already locked in fuel costs for the customer in Singapore. Also, YTL PowerSeraya was affected by lower operating margin from the vesting contract with SP Services and weaker retail and tank leasing margins in 2QFY19.

• In terms of topline however, YTLP’s revenue climbed by 4.4% YoY to RM2.9bil in 1HFY19 underpinned mainly by a 62.2% jump in the turnover of the power generation division. This is mainly in respect of the Paka gas power plant (585MW) in Terengganu.

• Pre-tax earnings of the Paka power plant swung to a positive RM27mil in 1HFY19 from a loss of RM3.8mil in 1HFY18 as the power purchase agreement was extended by three years and 10 months from 1 September 2017 onwards.

• Pre-tax profit of Wessex Water fell by 5.5% to RM399.7mil in 1HFY19 from RM423.0mil in 1HFY18 mainly due to higher finance cost and the appreciation of the MYR against the GBP. Wessex Water’s functional currency is GBP.

• Pre-tax losses at the mobile broadband network narrowed to RM18.4mil in 1HFY19 from RM38.3mil in 1HFY18 as operating costs declined.

• Going forward, the division’s outlook is uncertain as the 1BestariNet contract is expected to expire at the end of June 2019. 1BestariNet is a RM4 billion project to provide internet connectivity and create a virtual learning environment (VLE) for 10,000 schools nationwide.

Source: AmInvest Research - 28 Feb 2019