- 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 FY14F-FY15F net profits as the group’s FY13 net profit of RM1,072mil was within street estimates, but 6% below our forecast due to impairment provisions for the Paka and Pasir Gudang plants and higher-than-expected losses from the WiMax operations.

- However we cut FY14F-FY15F DPS by 80%, as the group did not declare any 4QFY13 dividends (and consecutively over the past 3 quarters) which translates to only 0.9 sen DPS in 1QFY13. Note that we had forewarned of such a possibility in our past reports after the group invested in its WiMax operations and was seeking other foreign ventures, such as the oil shale project in Jordan.

- We introduce a flat YoY FY16F earnings as we assume the cessation of the Paka & Pasir Gudang power purchase agreement in September 2015 to be largely offset by lower losses from the group’s WiMax operations.

- Sequentially, YTLP’s 4QFY13 pretax profit was flat at RM340mil as lower power contributions and higher WiMax losses were offset by stronger contributions from Power Seraya in Singapore.

- YoY, YTLP’s FY13 pre-tax profit slid by 4% to RM1,337mil as impairment of receivables for the Paka & Pasir Gudang plants was mostly offset by:- (i) higher tariff charges for UK-based Wessex Water; (ii) a 13% decline in WiMax losses, and; (iii) higher contributions from PT Jawa.

- Overseas operations continue to account for most of the group’s earnings as 89% of the group’s FY13 profitable business comes from Power Seraya and Wessex Water. Meanwhile, the RM269mil losses from YTLP’s Yes 4G services had dwarfed the domestic power generation’s EBIT of RM178mil (See Table 2).

- Yes WiMax’s 4QFY13 losses rose by 38% QoQ to RM76mil. In our view, it has not shown any abating signs as Yes has currently ceased selling smartphone devices but is currently focused on its ChromeBooks. The latter is part of the implementation of the 1Besterinet programme to 10,000 schools in East and West Malaysia. But we are uncertain whether a sustainable turnaround in WiMax’s results could happen after Yes achieves its targeted subscriber base of 1mil. Hence, we maintain our FY14F-FY15F loss assumptions for now.

- The stock currently trades at a fair FY13F PE of 10x – within its three-year diluted PE band of 10x-16x. At these valuations, dividend yield is below 1% which is disappointing for a stock which carries a recurring earnings profile.

Source: AmeSecurities