Investment Highlights

• We maintain HOLD on YTL Power (YTLP) with a higher SOP-based fair value of RM0.83/share. We raise YTLP’s SOP to account for the RM3.1bil cash proceeds from ElectraNet and higher DCF for Wessex Water. Going forward, Wessex Water’s revenue is expected to increase in line with the rise in UK inflation.

• YTLP’s 9MFY22 core net profit (excluding gain of RM1.3bil on disposal of ElectraNet) was sharply below our forecast and consensus estimates. YTLP’s core pre-tax profit did not recover in 3QFY22 after a weak 2QFY22. The rebound in the pre-tax profit of YTLP Seraya in Singapore was offset by a 38.6% QoQ drop in the earnings of Wessex Water and wider losses in the mobile broadband network and investment holding divisions in 3QFY22.

• We reduce YTLP’s FY22E net profit by 52.4% to account for weaker contribution from Wessex Water and larger losses in the investment holding and mobile broadband divisions.

• The multi-utilities division (mainly YTLP Seraya) recorded an increased pre-tax profit of RM135.2mil in 3QFY22 vs. RM14.2mil in 2QFY22 as gas supply from Indonesia resumed. The division’s pre-tax profit margin improved to 3.9% in 3QFY22 from a small 0.4% in 2QFY22.

• Pre-tax profit of the water and sewerage division (mainly Wessex Water) slid to RM89.1mil in 3QFY22 from RM145.2mil in 2QFY22. We attribute the QoQ fall in earnings to higher costs of chemicals and interest expense. Pre-tax profit margin of the unit shrank to 8.8% in 3QFY22 from 14.2% in 2QFY22.

• We believe that the mobile broadband division experienced a drop in the number of subscribers and higher costs in 3QFY22. Pre-tax losses of the unit were larger at RM85.7mil in 3QFY22 vs. RM34.2mil in 1QFY22 and RM16.4mil in 2QFY22.

• Excluding the disposal gain on ElectraNet, we estimate that the investment holding division recorded a pre-tax loss of RM407.3mil in 3QFY22. Included in the losses were impairments of project development costs of RM124.2mil and intangible assets of RM82mil.

Source: AmInvest Research - 27 May 2022