Results

In line - Reported 2QFY14 core earnings of RM243.3m, leading to RM549.8m for 1HFY14, which is 49.0% of HLIB’s and consensus.

Deviations

None.

Dividends

YTLP announced treasury share payout exercise of 1 for every existing 20 ordinary shares, which translate into 8.5 sen/share (RM1.70/20) or 5% dividend yield.

Highlights

Malaysia power generation (Paka and Pasir Gudang) is expected to expire starting September 2015, which ends YTLP’s existing lucrative business segment. The new track 3B 2,000MW Coal-fired Power plant is expected to be awarded to 1MDB, ending YTLP’s power generation empire in Malaysia.

Singapore Seraya is experiencing pressure on both margin and sales volume due to increasing power generation capacity in Singapore.

Wessex Water received tariff hikes approval from UK government in October 2013, contributing to higher revenue and earnings in the quarter to compensate its higher operational cost and capex. The management is confident of achieving its 2010-15 regulatory outperformance target.

The depreciation of RM will improve overall earnings from YTLP’s foreign subsidiaries based on higher forex translation.

YTL Communication (YTLC) reported higher revenue and lower losses in 2Q14, on the back of increased subscriber base. We expect breakeven only in FY15. We believe that YTLP is migrating into LTE technology (currently WIMAX), which will require high capex as well as transitional cost, which may affect its margin in the early implementation stage.

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 (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 - 21 Feb 2014