- We maintain HOLD on YTL Power International (YTLP), with an unchanged fair value of RM1.58/share, based on a 15% discount to our sum-of-parts value of RM1.86/share.

- We maintain FY13F-FY14F net profits as the group’s 9MFY13 net profit of RM765mil was within our expectations, accounting for 67% of our FY13F earnings of RM1,143mil, but slightly below street’s RM1,186mil.

- As in 2QFY13, the group did not declare any interim dividend in 3QFY13 – the second consecutive time since 2006. With only 0.9 sen (-75% YoY) declared in 9HFY13, there is a strong likelihood that YTLP’s full-year dividend may miss our flat YoY DPS forecast of 4.7 sen.

- While the rumours of YTLP’s privatisation have receded, management has not provided any guidance on dividend policy. For now, we maintain our FY13F-FY15F DPS forecast pending 4QFY13 results.

- Sequentially, YTLP’s 3QFY13 net profit was flat at RM256mil as lower power contributions were offset by a 28% reduction in WiMax’s losses to RM55mil.

- YoY, YTLP’s 9MFY13 net profit declined by 7% due to higher depreciation and maintenance charges for the Paka & Pasir Gudang power plants as well as lower fuel and electricity demand for Power Seraya in Singapore. This was partly offset by higher tariff charges for UK-based Wessex Water, 10% decline in WiMax losses, higher dividend and associate contributions.

- Overseas operations currently account for the group’s 9MFY13 profitable business as the RM193mil loss from YTLP’s Yes 4G services has dwarfed the domestic power generation’s EBIT of RM151mil (See Table 2).

- While WiMax’s losses have eased in this quarter, we do not expect any turnaround in this division this year. Thus far, over 4,000 base stations have been built, out of the group’s target of 5,000 stations. The capex spent so far on WiMax has reached RM1.8bil with a subscriber base over 400,000.

- But given that WiMax’s capex has risen by 40% to RM3.5bil from RM2.5bil with the implementation of the 1Besterinet programme to 10,000 schools in peninsular and East Malaysia, we believe the breakeven level may be stretched to 1.5 million subscribers from an earlier 1 million target. Hence, we maintain our FY13F loss assumption of RM200mil.

- The stock currently trades at a fair FY13F PE of 10x – within its three-year diluted PE band of 10x-16x. But current gross dividend yield of 3% (which could later disappoint expectations) is low for a stock with a recurring earnings profile.

Source: AmeSecurities