Investment Highlights

• We upgrade YTL Power (YTLP) to HOLD from UNDERWEIGHT with a higher RNAV-based fair value of RM0.72/share (vs. RM0.60/share previously). This is due to the sustained earnings improvement in Singapore. We have raised YTLP’s FY21F net profit by 64.2% to account for the earnings turnaround in the multi-utilities division (mainly YTLP Seraya in Singapore).

• The multi-utilities unit swung into the black in 1HFY21 on the back of higher retail and vesting margins and a reversal of impairment on receivables of RM38.5mil. The division recorded a pre-tax profit of RM181.7mil in 1HFY21 vs. a pre-tax loss of RM117.5mil in 1HFY20.

• Excluding the reversal of impairment, the multi-utilities division’s pre-tax profit would have been RM143.2mil in 1HFY21. The unit’s pre-tax profit surged to RM91.4mil (exreversal of impairment) in 2QFY21 from RM36.1mil in 1QFY21.

• YTLP’s 1HFY21 results were 61% above our forecast and 15% above consensus estimates. YTLP exceeded our earnings estimates due to stronger-than-expected profits from the multi-utilities division in Singapore.

• We have not included earnings from the 45%-owned Attarat Power Company in YTLP’s FY22F net profit yet. Attarat Power is under international arbitration to reset its PPA after a force majeure was activated. The Attaratpower plant was supposed to be commissioned in mid-2020E.

• Also, we have not accounted for the impact of the Tuaspring power plant in YTLP’s FY22F net profit yet. In 9MFY18, Tuaspring (water desalination plant and power plant) recorded an estimated net loss of S$70.6mil.

• YTLP’s net profit improved by 68.2% YoY to RM231mil in 1HFY21 on the back of a lower effective tax rate and higher contribution from the multi-utilities division (mainly YTL Power Seraya in Singapore). YTLP’s effective tax rate declined to 25.9% in 1HFY21 from 33.5% in 1HFY20 due to income in jurisdictions which have low tax rates.

• On a negative note, pre-tax profit of the water and sewerage unit (Wessex Water in the UK) fell by 30.7% to RM266.3mil in 1HFY21 from RM384.1mil in 1HFY20. We believe that Wessex Water’s water tariff has been revised downwards.

• Pre-tax losses of the telecommunications division (YES network) narrowed to RM145.5mil in 1HFY21 from RM176.9mil in 1HFY20. The telecommunications division’s revenue was flat at RM198.2mil YoY in 1HFY21.

Source: AmInvest Research - 26 Feb 2021