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 9MFY19 core net profit (excluding impairment of RM70.5mil) was within our forecast but 16% below consensus estimates.

• After an unexciting 2QFY19, which included a RM70.5mil impairment for a debtor in Singapore, YTLP’s reported net profit rebounded in 3QFY19. YTLP reported a net profit of RM111.3mil in 3QFY19 compared with RM72mil in 2QFY19.

• Excluding the RM70.5mil impairment however, YTLP’s core net profit fell by 21.8% to RM111.3mil in 3QFY19 from RM142mil in 2QFY19. The drags came from the multi utilities (mainly YTL PowerSeraya) and water and sewerage (mainly Wessex Water) divisions.

• Core pre-tax loss of the multi utilities division widened to RM86.5mil in 3QFY19 from RM46.7mil in 2QFY19 due to lower vesting contracts and retail margins in Singapore. Pre-tax profit of the water and sewerage unit dived by 10.6% QoQ to RM178.1mil in 3QFY19 due to higher

• Pre-tax earnings of the power generation division surged to RM41.7mil in 9MFY19 from RM5.1mil in 9MFY18 as the power purchase agreement for the 585MW Paka power plant in Terengganu was extended by three years and 10 months from 1 September 2017 onwards.

• Excluding the RM70.5mil impairment, pre-tax of the multi utilities division (mainly PowerSeraya) swung to a loss of RM149.1mil in 9MFY19 from RM68.2mil in 9MFY18. Operating margins of the retail market in Singapore and vesting contracts with SP Services continued to deteriorate in 9MFY19.

• Pre-tax profit of the water and sewage division (mainly Wessex Water) fell by 13.4% to RM577.8mil in 9MFY19 from RM667.4mil in 9MFY18 dragged by a stronger MYR vs. GBP and increases in depreciation and interest expenses.

• Pre-tax losses at the mobile broadband network (1BestariNet and YES) declined to RM28.3mil in 9MFY19 from RM65.5mil in 9MFY18 due to lower operating expenses. In spite of this, we believe that the division’s outlook is cloudy as the 1BestariNet contract is expected to expire at the end of June 2019. 1BestariNet is an RM4bil project to provide internet connectivity and create a virtual learning environment (VLE) for 10,000 schools nationwide.

Source: AmInvest Research - 3 Jun 2019