Investment Highlights

• YTL Power’s effective tax rate was higher than expected while mobile broadband saw a soft patch. Maintain our HOLD recommendation and but lower our FV of RM1.38 (from RM1.50/share). Our FV is derived from an SOP valuation (Exhibit 3). We opine current valuations are fairly reflective of YTLP’s near-term outlook as YTLP trades in line with its regional peers (Exhibit 4).

• YTLP’s 1QFY18 registered a core net profit of RM132.4mil (QoQ: -34%, YoY: -10%) off a revenue of RM2,578mil (QoQ: -0.3%, YoY: 10%). The results came in below our and consensus forecast at 19% and 16% of estimates respectively. The shortfall was due to a higher-thaneffective tax rate and the soft mobile broadband segment performance.

• The power generation segment saw a month’s contribution from Paka power plant. Despite that, losses widened to -RM18.2mil (vs -RM14.7mil in 4QFY17) off start-up costs on top of the usual maintenance and depreciation cost. Recall, Paka’s PPA renewal of 3 years and 10 months commenced on 1 Sep 17. With a full quarter’s contribution, we expect Paka to make a net positive contribution from 2QFY18 onwards.

• The mobile broadband segment narrowed losses to - RM17.6mil from -RM22.7mil, in spite of -15.6% smaller revenue base. This stemmed from a rationalization exercise to streamline its WiMAX to its LTE network. The elimination of overlapped networks resulted in cost savings while service disruption weighed on the top line.

• We understand that YES has maintained the number of subscribers but is acutely aware of possible erosion over the course of the next 12 months until the completion of the rationalization exercise. YTLP needs to enlarge its subscriber base by 30% to break even.

• Both Wessex Water and the utilities segment did not see material operational developments over the quarter. However, higher financing cost weighed on both segments as utilities and water segment earnings contracted 25% and 8% YoY respectively.

• We trim our FY17/18/19F forecast by 2-3% as earnings fell a shade short. Key risks to our forecast include the strengthening of the MYR against GBP and enlarged earnings drag arising from the mobile broadband segment.

Source: AmInvest Research - 23 Nov 2017