Investment Highlights

• Maintain HOLD on YTL Power (YTLP) with a lower RNAVbased fair value of RM0.91/share vs. RM0.94/share previously. We have reduced YTLP’s FY20F net profit by 3.3% to account for the loss of the 1BestariNet contract.

• Net asset value of the mobile broadband unit was RM2.2bil as at end-June 2018.

• YTLP’s RM4bil 1BestariNet contract was not renewed by the Malaysian government. The government has replaced 1BestariNet with Google Classroom. The 1BestariNet contract expired on 30 June 2019.

• Telekom Malaysia, Celcom Axiata and Maxis Broadband will take over as internet service providers for the schools from 1 July 2019 onwards.

• This is negative for YTLP. There is risk that losses in the mobile broadband unit would widen. There is also risk that the assets of the division would be impaired.

• Due to the loss of 1BestairNet, we have assumed that pretax losses in the mobile broadband division would be RM35mil in FY20F vs. RM20mil previously.

• 1BestariNet is estimated to account for 60% to 65% of the division’s revenue. We do not know 1BestariNet’s earnings contribution.

• The mobile broadband division recorded revenue of RM784mil in FY18 and pre-tax loss of RM99mil. In 9MFY19, the unit registered a revenue of RM634.9mil and pre-tax loss of RM28.3mil.

• About 3,000 out of YTLP’s 5,000 base stations were used for 1BestariNet. Hence, YTLP may have to move the 3,000 base stations from the schools. There is risk that the relocation of the base stations would increase operating expenses for the mobile broadband division.

Source: AmInvest Research - 1 Jul 2019