Investment Highlights

• We maintain HOLD on YTL Power (YTLP) with an unchanged RNAV-based fair value of RM0.75/share. YTLP is currently trading at FY20F PE of 23.2x and FY21F PE of 31.5x.

• We have not accounted for earnings from YTLP’s 45%- owned Attarat Power Company yet. The latter will be completing a 554MW power plant in Jordan in mid-2020.

• YTLP’s 1HFY20 results were within our expectations but 25% below consensus estimates. At first glance, YTLP’s 1HFY20 results appear stronger than our numbers. However, we are keeping our forecast as losses in the telecommunication division may widen in the following quarters.

• YTLP’s core net profit fell by 48.8% to RM137.6mil in 1HFY20 from RM268.5mil (ex-impairment of RM70.5mil) in 1HFY19 due to larger losses in the multi-utilities unit in Singapore and telecommunications division in Malaysia. Also, Wessex Water’s earnings were 3.9% lower YoY in 1HFY20.

• Pre-tax losses of the multi-utilities division in Singapore (mainly YTLP Seraya) widened to RM117.5mil in 1HFY20 from RM62.6mil in 1HFY19 (ex-impairment of RM70.5mil) due to stiff competition in the open electricity market and declining margins from the vesting contracts, which are more stable.

• In the open electricity market, there are more than 10 players in Singapore. Out of the 10, about six players are in generation and retailing. Also, we believe that only 14% of YTLP Seraya’s revenue come from vesting contracts with SP Services currently compared with more than 20% previously.

• Pre-tax losses of the telecommunications division in Malaysia climbed to RM176.9mil in 1HFY20 from RM18.4mil in 1HFY19 due to the non-renewal of the 1Bestarinet contract. Recall that the contract expired on 30 June 2019.

• 1Bestarinet generated revenue of RM400mil to RM500mil per year. We believe that the government would be holding an open bidding for the online education system soon. We reckon that YTLP would be taking part in the tender process.

• Pre-tax profit of the water and sewerage division (mainly Wessex Water in the UK) declined by 3.9% to RM384.1mil in 1HFY20 from RM399.7mil in 1HFY19 due to higher depreciation and interest expenses.

Source: AmInvest Research - 21 Feb 2020