Investment Highlights

• We are downgrading YTL Power (YTLP) to HOLD from BUY with a lower SOP-based fair value of RM0.67/share vs. RM0.77/share previously. We have reduced YTLP’s FY22F net profit by 48.3% to account for the contribution to a social responsibility programme and lower pre-tax profit from YTLP Seraya. We ascribe a three-star ESG rating to YTLP.

• Due to the donation to a social responsibility programme, the investment holding division recorded a pre-tax loss of RM126.6mil in 1HFY22 vs. a pre-tax gain of RM0.3mil in 1HFY21.

• YTLP’s annualised 1HFY22 net profit was sharply below our forecast and consensus estimates. The discrepancy between YTLP’s actual net profit and our forecast was due to a drop in the earnings of the multi-utilities division (YTLP Seraya) and losses in the investment holding unit.

• Pre-tax profit of the multi-utilities division fell to RM89.6mil in 1HFY22 from RM181.7mil in 1HFY21 due to high fuel costs. Pre-tax profit margin of the division declined to 1.5% in 1HFY22 from 6.3% in 1HFY21.

• Pre-tax profit of the water and sewerage unit (mainly Wessex Water) improved to RM275.3mil in 1HFY22 from RM266.3mil in 1HFY21 supported by higher demand from the retail market. However, pre-tax profit margin of the division slid to 13.3% in 1HFY22 from 14.7% in 1HFY21 dragged by higher costs of chemicals for the treatment of water.

• Pre-tax losses of the mobile broadband division declined to RM50.6mil in 1HFY22 from RM145.5mil in 1HFY21 as the number of subscribers increased. YES has more than 2.3mil subscribers currently.

• Comparing 2QFY22 against 1QFY22, YTLP’s net profit fell to RM18.8mil from RM35.4mil due to an 81.2% plunge in the pre-tax profit of the multi-utilities division. Pre-tax losses of the investment holding division was slightly smaller at RM61.3mil in 2QFY22 vs. RM65.3mil in 1QFY22.

Source: AmInvest Research - 25 Feb 2022