Investment Highlights

• We maintain UNDERWEIGHT on YTL Power (YTLP) with an unchanged RNAV-based fair value of RM0.60/share. YTLP is currently trading at FY21F PE of 30.4x. FY21F dividend yield is estimated to be 3.6%.

• We have not accounted for earnings from YTLP’s 45%- owned Attarat Power Company in our FY21F earnings forecast. The latter is expected to complete a 554MW power plant in Jordan in 3Q2020.

• We have also not accounted for the impact of the Tuaspring power plant in YTL’s FY21F net profit. We think that the proposed acquisition of Tuaspring for S$331.5mil (RM1.02bil) would only be completed in 2H2020.

• YTLP’s 9MFY20 results were within our expectations but about 25% below consensus estimates. YTLP’s core net profit (ex-FY19’s RM70.1mil impairment on receivables) fell by 45.1% YoY to RM208.4mil in 9MFY20, dragged by a 7.1% decline in earnings in the water and sewerage division (Wessex Water) and larger losses in the telecommunications unit (YES).

• Pre-tax loss in the multi-utilities division (YTLP Seraya) in Singapore widened marginally to RM155.2mil in 9MFY20 from RM149.1mil (ex-impairment of RM70.5mil) in 9MFY19.

• We attribute this to lower electricity demand in Singapore during the Covid-19 outbreak in 3QFY20 and declining EBIT margins of the vesting contracts. Also as mentioned in previous reports, competition in the open electricity market in Singapore is stiff as there are more than 10 players.

• Pre-tax profit of the water and sewerage division (mainly Wessex Water in the UK) fell to RM536.8mil in 9MFY20 from RM577.8mil in 9MFY19 due to higher sewerage costs, depreciation and interest expenses.

• Going forward, due to regulatory guidelines, Wessex Water may be recording an 11% fall in water tariff. This may affect YTLP’s FY21F net profit. Currently, we forecast a 6% decline in the pre-tax profit of the water and sewerage division in FY21F.

• Pre-tax loss of the telecommunications division (YES network) in Malaysia increased to RM220.2mil in 9MFY20 from RM28.3mil in 9MFY19 due to the non-renewal of the 1BestariNet contract. Recall that the contract expired on 30 June 2019. 1BestariNet used to generate revenues of RM400mil to RM500mil per year

Source: AmInvest Research - 17 Jun 2020