Investment Highlights

• We are keeping our HOLD recommendation on YTL Power (YTLP) with a lower RNAV-based fair value of RM0.82/share (vs. RM0.91/share previously). We reduce YTLP’s fair value to account for weaker cash flows from Wessex Water and YTLP Seraya, Singapore.

• In YTLP’s RNAV also, we have assumed a 10% asset impairment for the mobile broadband division. Recall that the mobile broadband division’s RM4bil 1BestariNet contract was not renewed by the government. The contract expired at the end of June 2019. The division’s net asset value was RM2.2bil as at end-June 2018.

• YTLP’s FY19 core net profit (excluding impairment of RM70.5mil) was within our forecast and consensus estimates. We cut YTLP’s FY20F net profit by 12.3% to account for weaker earnings from Wessex Water and YTLP Seraya.

• The group has declared a final gross DPS of 5 sen for FY19E. We have forecast a smaller gross DPS of 3 sen for FY20F in line with the fall in YTLP’s net profit.

• YTLP’s core net profit improved by 34.9% QoQ to RM150.2mil in 4QFY19 mainly due to smaller losses in YTLP Seraya in Singapore and a turnaround in the mobile broadband unit (YES and 1BestariNet).

• Pre-tax losses of the multi-utilities division (mainly YTLP Seraya in Singapore) narrowed to RM22.4mil in 4QFY10 from RM86.5mil in 3QFY19. We believe that this could be due to lower depreciation charges and improved retail margins.

• Comparing FY19 against FY18 however, the division’s pretax loss amounted to RM171.6mil in FY19 (ex-RM70.5mil impairment of debtor) compared with a pre-tax profit of RM72mil in FY18. The unit was affected by lower vesting contract margins in FY19.

• The water and sewerage division (mainly Wessex Water) recorded a smaller pre-tax profit of RM168.1mil in 4QFY19 compared with RM178.1mil in 3QFY19. The QoQ decline in the division’s pre-tax profit in 4QFY19 can be attributed to higher finance costs and a weaker GBP vs. the MYR. Comparing FY19 against FY18, pre-tax profit of the water and sewerage unit dropped 24.8% to RM745.9mil from RM991.4mil.

• The mobile broadband division registered a pre-tax profit of RM10.0mil in 4QFY19 vs. a loss of RM9.9mil in 3QFY19. We believe that the improved performance in 4QFY19 was due to increased recognition of revenue from the 1BestariNet contract. The unit posted a smaller pre-tax loss of RM18.3mil in FY19 compared with RM99mil in FY18.

Source: AmInvest Research - 30 Aug 2019