Results

In line - Reported 3Q13 core earnings of RM203.4m, leading to RM636.7m for 9M13, which is 64.3% of HLIB’s FY13 forecast, but only 53.9% of consensus. We expect stronger earnings for 4Q13, banking on lower losses from Yes and tariff hikes from Wessex Water. Historically 4Q contributed 28-40% of full year’s earnings.

Deviations

None.

Dividends

None. This is the second consecutive quarters that YTLP withhold its dividend payout since 2Q13.

Highlights

Malaysia power generation reported lower earnings in 3Q13 and 9M13 due to higher provision for maintenance cost and depreciation.

Singapore Seraya experienced lower contracted tariff, lower electricity sales and lower traded fuel oil price in 3Q13 and 9M13, contributing to lower margins and earnings. There are rising concerns on the increase in Singapore power generation capacity, which would add pressure to both margin and sales volume in FY13.

Wessex Water received regulatory tariff hikes in October 2012, contributing to higher revenue and earnings in FY13 to compensate for its higher operational cost and capex.

YTLC continued to record losses in 3Q13, attributed to high operational cost as it incurred heavy capex to increase substation base (currently at 4,000) and fulfilling its 1 Bestarinet obligation. YTLC continued to introduce innovative products such as Samsung YES phone, Chrome Book to attract higher subscriber base.

YTLP’s 30% associate APCO is evaluating 6 proposals from world renowned engineering and construction companies to construct Jordan’s first oil shale-fired power plant. The plant is expected to complete only by 2017. Risks Downside risks –

Appreciation of RM against other foreign currencies.

YTLC facing strong competition from the existing telcos.

Forecasts

Unchanged

Rating

HOLD

• Positives –
  • Strong and stable cash flow.
  • Large cash piles (RM10.9bn) allowing YTLP to look for more value accretive acquisitions
• Negatives –
  • The increasing competitive environment for YTLC especially with the implementation of LTE networks by the major telcos.
  • High operating cost environment in United Kingdom (inflationary pressure) and Singapore (high fuel cost).
  • Increasing power generation capacity in Singapore adds pricing pressures into the market.

Valuation

Maintained Hold with unchanged target price of RM1.66 based on 10% discount to Sum-of-Parts.

Source: Hong Leong Investment Bank Research - 27 May 2013