Results

Within Expectations - reported 1QFY14 core earnings of RM306.5m, which is 27.3% and 27.1% of ours and consensus numbers.

Deviations

None.

Dividends

None.

Highlights

Higher contributions from YTL Power Generation Plants in Paka and Pasir Gudang as gas supply has improved since Melaka Regassification facility commenced operation in July 2013. YTLP is protected from the higher imported gas price due to cost pass through. These first generation IPPs are expected to cease operation by Sep 2016 (scrap/sell the plants and return the land to TNB). Worth-noting that YTLP is rumoured to be the front-runner for the new Track 3B Project to build and operate a 2,000MW coal-fired power plant (the other contenders are TNB and 1MDB). The winner of the contract will only be announced in early 2014. Winning the project would be positive to YTLP.

Singapore Power Seraya is expected to continue face competitive selling pressure and margin compression on increasing power generation capacity in the country. Power Seraya will strive to diversify its business operation into an integrated multi-utilities energy player and make sure operation cost under control.

UK Wessex Water is confident in delivering its 2010-15 regulatory outperformance targets. The deprecation of RM against UK£, is expected to improve its earnings contribution to the group.

YTL Communication (YTLC) has been gaining larger customer base, as it introduces more innovative products and services, and expected turnaround its losses within 2 years.

Risks

Downside risks –

• Appreciation of RM against other foreign currencies.
• YTLC facing strong competition from existing telcos.

Forecasts

Unchanged.

Rating

HOLD

Positives –

• Strong and stable cash flow.
• Large cash piles (RM8.1bn) allowing YTLP to look for more value accretive acquisitions

Negatives –

• The increasing competitive environment for YTLC especially with the implementation of LTE networks.
• High operating cost environment in United Kingdom (inflationary pressure) and Singapore (high fuel cost)

Valuation

Maintained Hold with higher target price of RM1.85 (from RM1.66) after we removed previously assigned 10% discount to Sum-of-Parts, to reflect improved sentiments on YTLP (front-runner for new Track 3B Project).

Source: Hong Leong Investment Bank Research - 22 Nov 2013