- We maintain HOLD on YTL Power International (YTLP) with an unchanged sum-of-parts fair value of RM1.56/share.

- YTLP posted a 1QFY15 net profit of RM244mil on the back of turnover of RM3.4bil. Annualised, the results met both our and consensus expectations.

- As expected, YTLP did not declare any dividend. Payouts have been erratic given the likely need of further investments against the backdrop of uncertainties over the extension/replacement of its domestic power plants. Hence, we are maintaining our zero dividend payout ratio assumption for FY15F-FY17F for now.

- The group recorded a sequentially higher pretax profit (+30%) of RM303mil, after having reported a RM55mil impairment allowance of property, plant and equipment in the previous quarter.

- However, with the normalisation of its tax rate to 21% post the one-off tax credit and deferred tax reversal of RM267mil in 4QFY14, its net profit had declined by 46% QoQ.

- YoY, YTLP’s revenue fell by 16% dragged mainly by Power Seraya, which sold less electricity at lower prices following the expanding generation capacity in Singapore. Earnings were however higher by 4% YoY supported by a 3.3-ppt EBIT margin expansion.

- Meanwhile, YTLP’s Yes 4G services posted wider losses both QoQ (+50%) and YoY (+57%). We remain cautious about Yes’ losses in view of the group’s commitment to expand its services to 10,000 schools in Malaysia under the 1BestariNet project. Breakeven level may not be achievable even if it hit its targeted subscriber base of 1mil.

- The group’s exposure to Malaysian power generation earnings, which accounted for 17.5% of 1QFY15’s profitable operations, may cease by Sept 2015 and lead to a significant absence of domestic earnings contribution.

- That said, there remains a high possibility of the EC temporarily extending the PPAs for its domestic plants as Peninsular Malaysia’s power reserve margin may drop below 30% by 2016 if the Gen-1 plants are taken offline.

- Pending an official announcement from the EC, we are maintaining our FY15F-FY17F estimates. Overseas operations continued to account for most of the group’s earnings as 72% of the group’s profitable business in 1QFY15 came from Power Seraya and Wessex Water.

- The stock currently trades at a fully-diluted FY15F PE of 12x –at the upper end of its 3-year PE band of 10x-12x. Our fair value implies a forward PE of 11x.

Source: AmeSecurities