Highlights/ Comments

As technology progresses, YES (60% owned by YTL International Power) is looking to migrate into TDD-LTE technology, which offer better services and experiences than WiMAX technology. YES was awarded with 20MHz block of 2.6GHz LTE spectrum by MCMC (Malaysia Communications and Multimedia Commission) in Dec 2012.

According to sources, YES is currently undergoing LTE trial-runs on its 20MHz block of 2.6GHz spectrum as well as Asiaspace’s 30MHz block of 2.3GHz spectrum (WiMAX). Note that, LTE technology can be implemented on any spectrum (as long as approved by MCMC).

There is the possibility of YES lobbying for Asiaspace’s spectrum, which will allow YES to migrate its existing WiMAX subscribers to LTE seamlessly (same 2.3GHz spectrum) and compete at a more even playing field with incumbent huge telco players i.e. Maxis, Celcom & Digi.

LTE is still relatively new in Malaysia, with leading player Maxis having only 520k devices in its network, while Celcom and Digi are far behind. Hence, YES has great opportunity to grab market share on similar starting point.

While trial-runs cost is borne by equipment providers, we estimate YES to allocate annual capex of RM1bn upon implementation of TDD-LTE, which may affect YES’s profitability due to high start-up cost and low subscriber base of less than 500k users.

Unlike WiMAX, we expect wide acceptance of TDD-LTE technology among Malaysian, as the industry (all telcos) push forward to provide services over a pure advance data network and increasing availability of common LTE compatible devices such as Samsung and Iphone 5S.

On power generation segment, YTLP is rumoured to lose out in its bid for Track 3B 2,000MW Coal Power Generation (Greenfield Project) to 1MDB, which may further affect market sentiment on YTLP.

Risks

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

Forecasts

Unchanged at this juncture, as YES require the approval from MCMC to takeover Asiaspace’s spectrum.

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 unchanged target price of RM1.85 based on SOP.

Source: Hong Leong Investment Bank Research- 13 Feb 2014