Results

Below expectation - Reported 4QFY14 core earnings of RM128.6m, leading to RM984.5m for FY14, which is 87.7% of HLIB’s and 83.0% of consensus.

Deviations

Lower than expected margins for Seraya as well as domestic Paka and Pasir Gudang Power Generation.

Dividends

None.

Highlights

Malaysia power generation (Paka and Pasir Gudang) concession will expire starting Sep 2015. After losing bid for Track 3B 2,000MW coal-fired power plant to 1MDB, YTLP has again missed out on Track 4A 1,000-1,400MW gas-fired power plant, after pulling out from the preferred bid.

Singapore Seraya continued to experience pressure on both margin and sales volume due to increased power generation capacity in Singapore. The utilization of imported higher priced LNG supply in FY14 has further eroded margins. The division has been a major drag to the group as FY14 PBT dropped by 32.1% yoy.

The management remained confident with Wessex Water achieving its 2010-15 regulatory target. However, we caution investors on the potential lower returns for the next 5-years regulatory period (FY15-20) due to new ruling by UK Government on lower return or WACC for water assets at 3.85% as compared to Wessex’s existing 5.5% return based on WACC.

YTL Communication (YTLC) continued to report loss in 4Q14. Nevertheless, the division reported lower FY14 LBT at RM170.4m (vs.RM277.2m in FY13) due to higher subscriber base. We believe that YTLP is migrating into LTE technology (currently WIMAX), which may affect margins at the starting phase due to high capex. Risks Downside risks

Appreciation of RM against other foreign currencies.

YTLC facing strong competition from existing telcos.

Forecasts

Cut earnings by 27.5% and 19.0% for FY15-16. Introduced FY17 earnings at RM1.2bn.

Rating

HOLD

Positives –

• Strong and stable cash flow.
• Large cash piles (RM8.9bn) allowing YTLP to look for more value accretive acquisitions

Negatives –

• The increasing competitive environment for YTLC especially with the implementation of LTE networks.
• Lower regulated return onWessex Water by OFWAT.
• Competitive and high operating cost environment by Seraya Power in Singapore.

Valuation

Maintained Hold with lower target price of RM1.44 (from RM1.66) based on unchanged 10% discount to SOP, after tweaking our model.

Source: Hong Leong Investment Bank Research- 29 Aug 2014