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 28.8x. We do not forecast any gross cash DPS for YTLP in FY21F (FY20: share dividend worth 4.3 sen).
• At first glance, YTLP’s 1QFY21 results appear to exceed expectations. However, we believe that earnings from the core divisions may continue to deteriorate in the coming quarters due to uncertain economic conditions in the UK and Malaysia. Hence, we are keeping YTLP’s FY21F net profit forecast for now.
• We have not accounted for earnings contribution from the 45%-owned Attarat Power Company in our profit forecast for YTLP yet. We believe that the commissioning of Attarat’s power plant would be delayed to early 2021F from mid-2020E due to Covid-19.
• In addition, we have not accounted for the impact of the Tuaspring power plant in YTLP’s FY21F net profit. We believe that Tuaspring is in the red. In 9MFY18, Tuaspring (water desalination plant and power plant) recorded an estimated net loss of S$70.6mil.
• YTLP’s net profit rose by 14.1% YoY to RM77mil in 1QFY21 on the back of a lower effective tax rate. YTLP’s effective tax rate fell to 28.5% in 1QFY21 from 34.9% in 1QFY20. YTLP’s pre-tax profit was relatively flat at RM108.9mil in 1QFY21 compared with RM107.7mil in 1QFY20.
• The multi-utlity division (YTL Power Seraya in Singapore) swung to a pre-tax profit of RM36.1mil in 1QFY21 from a pre-tax loss of RM69.2mil in 1QFY20 on the back of higher retail margins and lower finance costs.
• On a negative note, pre-tax profit of the water and sewerage unit (Wessex Water in the UK) fell by 32.8% YoY to RM131.1mil in 1QFY21. We believe that this was due to lower water tariffs. Also, the power generation business in Malaysia (Paka power plant) recorded a pre-tax loss of RM1.8mil in 1QFY21 vs. a pre-tax profit of RM13.7mil in 1QFY20. The power plant’s pre-tax loss in 1QFY21 was mainly due to write-down of inventories.
• Pre-tax loss of the telecommunications division (YES network) remained relatively unchanged at RM69.9mil in 1QFY21. We attribute the losses to insufficient subscribers and the non-renewal of the 1Bestarinet contract on 30 June 2019. Going forward, we believe that it would be challenging for the division to swing into profitability.

Source: AmInvest Research - 27 Nov 2020