- We reiterate HOLD on YTL Power International (YTLP) with an unchanged SOP-based fair value of RM1.52/share.

- YTLP reported 4QFY15 net profit of RM189mil (QoQ:-15%) to end its FY15 with lower earnings of RM901mil (YoY: -25%). The results were below our and street estimates, accounting for 90% and 93%, respectively.

- The negative variance can be mainly attributed to the higher depreciation charge for its power generation business during the quarter and lower-than-expected contribution from its multi-utility business, which sold less electricity at lower prices.

- Operations of Power Seraya have been challenging in view of the expanding generation capacity in Singapore and lower fuel oil prices. Margins also contracted both on YoY (-1ppt) and QoQ (-2ppts) basis due to lower margins from vesting non-fuel and retail contracts.

- On a cumulative basis, YTLP’s Yes 4G losses once again widened in FY15 (YoY: +23%) after narrowing in the past two years. That said, its prospects appear to be improving, as sequential losses over the year has been gradually smaller. This comes amidst the growth in its subscriber base as the group introduced improved and innovative services to the market.

- Overseas operations continued to drive YTLP’s earnings in FY15. Its domestic power generation business only contributed 13% to the year’s profitable business. Wessex water remains the largest positive contributor to its earnings (FY15: 62%).

- Similar to FY14, YTLP declared a single-tier interim dividend of 10 sen/share in 4QFY15. This translates to a yield of 7% at the current price. While a one-time payout in 4Q may be its policy moving forward, we choose to be cautious by keeping our zero FY16F-FY18F dividend payout assumption for now given its likely need of further investments.

- We are also leaving our FY16F-FY17F earnings estimates unchanged despite its weaker-than-expected FY15 performance. This is pending YTLP’s ongoing negotiations with the EC on a PPA extension for its 808MW Paka plant (current PPA is set to expire on 30 Sept 2015).

- Having been selected as a successful bidder by the EC under the latter’s short-term capacity bid, YTLP is expected to secure an extension for the power plant for the period from 1 Mar 2016 to 31 Dec 2018. Likewise, we anticipate a PPA extension for its 404MW Pasir Gudang plant (current PPA expiring in Jan 2016).

- The stock currently trades at an FY16F PE of 13x. This is at the higher end of its 5-year PE band of 8x-13x. Our fair value implies a forward PE of 14x.

Source: AmeSecurities Research - 21 Aug 2015