Results

• Within Expectations - Reported 3QFY15 core earnings of RM219.9m, leading to RM754.0m for 9MFY15, which is 77.0% of HLIB’s and 76.0% of consensus.

Deviations

• None.

Dividends

• None.

Highlights

• YoY: 3QFY06/15 revenue declined by 18.8% to RM2.7bn, dragging down the core net profit by 28.8% to RM219.9m mainly due to lower contribution from Seraya Power, higher losses from YTLC (Yes) and higher group tax expenses.

• QoQ: Similarly, core net profit dropped by 21.3%, outpacing decline in revenue of 11.8%, due to lower contribution from Seraya Power and higher group tax expenses.

• YTD: 9MFY06/15 core net profit dropped by 11.9% to RM754.0m, mainly dragged by lower sales and margins for Seraya Power and losses of project income for Yes.

• Prospects: Expect continued margin pressures for Seraya Power (due to overcapacity in the power generation system in Singapore) and Yes (due to lower income from projects), while domestic power generation is expected to be resilient for the remaining quarter. Note that YLTP domestic Power Purchase Agreements will expire by Sept 2015.

Risks

• Downside risks –
• Appreciation of RM against other foreign currencies.
• YTLC facing strong competition from existing telcos.
• Lower regulatory return for Wessex Water.
• Continued pricing pressure (tariff) in Seraya Singapore.

Forecasts

• Unchanged.

Rating

• Sell

Positives

• Strong and stable cash flow.
• Large cash piles (RM8.7bn) 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).
• Overcapacity of power generation in Singapore market.

Valuation

• Maintained Sell with unchanged target price of RM1.50 based on 10% discount to Sum-of-Parts. We expect earnings to remain depressed in the near term, due to potentially lower margins for Singapore Seraya and UK Wessex Water, with continued earnings uncertainty from YTLC as well as concession expiry of domestic power generation (Sept 2015).

Source: Hong Leong Investment Bank Research - 22 May 2015