Investment Highlights

• We maintain BUY on YTL Power (YTLP) with a lower RNAV-based fair value of RM0.77/share vs. RM0.85/share previously.

• We have reduced YTLP’s FY22F net profit by 7.4% to account for a higher effective tax rate of 25% compared to 20% originally as dividends from overseas units such as Wessex Water, are expected to be taxed under Budget 2022. YTLP is currently trading at FY22F and FY23F PE multiples of 13.6x each. FY22F dividend yield is estimated to be 6.2%.

• We consider YTLP’s 1QFY22 net profit to be within our original forecast and consensus estimates as its social donation is not expected to be repeated in the following financial quarters. Although most of YTLP’s core operations performed better in 1QFY22 compared to 1QFY21, the group was affected by a pre-tax loss of RM65.3mil in the investment holding division. As a result, YTLP’s net profit fell by 54.0% YoY to RM35.4mil in 1QFY22.

• YTLP said that the pre-tax loss in the investment holding division was due to contributions to a corporate social responsibility programme and fair value loss on investments. The group did not disclose details of the social contribution.

• Pre-tax profit of the water and sewerage unit was relatively flat YoY at RM130.1mil in 1QFY22. Pre-tax profit margin of the water and sewerage division edged down to 12.5% in 1QFY22 from 15.0% in 1QFY21.

• Pre-tax profit of the multi-utilities division rose to RM75.4mil in 1QFY22 from RM36.1mil in 1QFY21. We believe that YTLP has increased its market share in Singapore as some of the vesting contracts of its competitors had expired in 2020. Pre-tax profit margin of the multi-utilities division expanded to 3.6% in 1QFY22 from 2.6% in 1QFY21.

• The mobile broadband division recorded smaller pre-tax losses of RM34.2il in 1QFY22 compared with RM69.6mil in 1QFY21 due to a higher number of subscribers. YES has more than 2.3mil subscribers currently.

• Comparing 1QFY22 against 4QFY21, YTLP swung into a net profit of RM35.4mil from a net loss of RM486.7mil. Recall that YTL recognised deferred tax charges of RM540.5mil in 4QFY21 as the corporate tax rate in the UK will be raised to 25% from 19% from 1 April 2023 onwards.

Source: AmInvest Research - 26 Nov 2021