Results

In line - Reported 4Q13 core earnings of RM325.9m, leading to RM962.5m for FY13, which is 97.1% of HLIB’s FY13 forecast, but only 88.3% of consensus.

Deviations

None.

Dividends

None. This is the third consecutive quarter without dividend.

Highlights

Malaysia power generation reported lower earnings in 4Q13 and FY13 on provisions for impairments of other receivables. The power generation concessionaires are expected to expire by Sep 2015.

Singapore Seraya multi utilities reported improved margins on electricity sales and take leasing and lower operating costs. The increasing Singapore power generation capacity is expected to negatively impact Seraya Power margins (pricing competition) and sales volume.

The revenue increase in Wessex water was mainly due to higher average tariff (revised every year), contributing to higher earnings (return on larger asset base).

YTLC continued to record losses in 4Q13, attributed to high operational cost as it incurred heavy capex to increase substation base and fulfilling its 1 Bestarinet obligation. YTLC reported lower losses in FY13, from increased customer base and contribution from 1 Bestarinet.

YTLP has resumed its share buyback exercise since early 2013, which was stopped since mid-2009. Treasury shares have increased substantially from 120m to 390m by end FY13, suggesting potential distribution of treasury shares in the future.

Risks

Downside risks –

• Appreciation of RM against other foreign currencies.
• YTLC facing strong competition from the existing telcos.
• Increasing power generation (fuel) cost.

Forecasts

Unchanged for FY14-15, and introduced FY15 earnings at RM1.26bn.

Rating

HOLD

Positives –

• Strong and stable cash flow.
• Large cash piles (RM10.9bn) allowing YTLP to look for more value accretive acquisitions

Negatives –

• Increasing competitive environment for YTLC especially with the implementation of LTE networks by 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.
• Expiry of domestic power generation concessionaire.

Valuation

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

Source: Hong Leong Investment Bank Research - 23 Aug 2013