- We reiterate our HOLD recommendation on YTL Power International (YTLP) with an unchanged sum-of-parts fair value of RM1.56/share, which implies an FY15F PE of 12.6x.

- YTLP reported a 2QFY15 net profit of RM245mil to extend its 1HFY15 earnings to RM489mil. The results were within expectations. Hence, we maintain FY15F-FY17F earnings.

- Sequentially, YTLP’s 2QFY15 revenue slid by 9.5% to RM3bil, due largely to decreased electricity sales in view of a more competitive regime in Singapore. Its pre-tax profit was, however, higher by 15% QoQ as pre-tax margins in all its business segments improved by an average of 4.5ppts.

- On a cumulative basis, its 1HFY15 pre-tax profit rose by 13% despite a 17.5% decline in its revenue. Lower contributions from its multi-utility business (i.e. lower margins from vesting non-fuel and retail contracts amid the former’s declining volumes) and mobile broadband business were the main reasons for the topline drag. This was partly mitigated by higher associate contributions and unrealised forex gains in 1HFY15.

- On a cumulative basis, losses at its Yes 4G services were wider by 64%. While management expects its subscriber base growth to generate higher revenues ahead, we believe that breakeven level may not be achievable even if it hits its targeted subscriber base of 1mil.

- While YTLP’s pretax profits for 2Q and 1H of FY15 grew by double digits, at the net level, it was only marginally higher (0.5% QoQ and 1.5 YoY) given the higher effective tax rates of 28% in 2QFY15 (vs. 1QFY15’s 22%) and 25% in 1HFY15 (vs. 1HFY14’s 15%).

- As expected, no dividends were declared. YTLP’s payouts have been erratic given the likely need for further investments against the backdrop of uncertainties over the extension/replacement of its domestic power plants. Hence, we are maintaining our zero dividend payout assumption for FY15F-FY17F for now.

- With 1MDB’s delays in its Jimah East plant (Project 3B) posing a threat to the nation’s future power supply, we believe that there remains a high possibility of the EC temporarily extending the PPAs for YTLP’s domestic plants (780MW Paka and 390MW Pasir Gudang). We note that Peninsular Malaysia’s power reserve margin may drop below 30% by 2016 if the Gen-1 plants are taken offline.

- At the current price, YTLP trades at a pricey fully-diluted FY15F PE of 13x, compared to Tenaga Nasional’s 12x (post its recent sharp share price retracements). This is above its 3-year PE band of 10x-12x.

Source: AmeSecurities