Investment Highlights

• We maintain HOLD on YTL Power (YTLP) with a lower SOP-based fair value of RM0.75/share (vs. RM0.83/share previously) and an unchanged 3-star ESG rating.

• We reduce YTLP’s FY23F net profit by 25% to account for lower earnings from the water and sewerage division.

• YTLP’s FY22 core net loss of RM53.1mil (excluding gain of RM1.3bil on the disposal of ElectraNet) was larger than consensus estimates of RM27.6mil. It also fell short of our earlier FY22 net profit forecast of RM94mil.

• YTLP was affected by a 23.4% fall in the pre-tax earnings of the water and sewerage division (mainly Wessex Water) in FY22. Also, there were write-offs of development costs of RM64.8mil in 4QFY22. The write-offs amounted to RM189mil in FY22. We believe that the write-offs were in respect of the Tanjung Jati coal power plant project in Indonesia.

• YTLP has declared a cash DPS of 2.5 sen for 4QFY22, which brings total cash DPS to 4.5 sen in FY22 (FY21: 4.5 sen). The gross DPS of 4.5 sen translates into a yield of 6.3% for FY22.

• YTLP’s core net losses narrowed to RM53.1mil in FY22 from RM197.2mil in FY21 due to a lower effective tax rate of 12.4% vs. 115.5%. In FY21, YTLP recognised deferred taxes in respect of a higher corporate tax rate in the UK.

• However on a core pre-tax profit level, YTLP dived by an estimated 85.3% to RM5.8mil in FY22. Apart from the 23.4% decline in the pre-tax profit of Wessex Water, YTLP recorded impairments of RM127.5mil for receivables and RM81.8mil for intangible assets as well as write-offs of development costs of RM189mil.

• Wessex Water was affected by higher interest expense and increased costs of chemicals and gas. The unit’s pre-tax profit margin slid to 9.2% in FY22 from 13.1% in FY21.

• The mobile broadband unit registered a larger pre-tax loss of RM197.1mil in FY22 vs. RM190.5mil in FY21 dragged by higher customer acquisition costs.

• On a positive note, the pre-tax profit of the multi utilities division (mainly YTLP Seraya) surged by 51.1% to RM415.8mil in FY22 due to higher retail margins in Singapore.

Source: AmInvest Research - 26 Aug 2022