Results

• Within Expectations - Reported 4QFY15 core earnings of RM178.3m, leading to RM932.3m for FY15, meeting HLIB and consensus expectations.

Deviations

• None.

Dividends

• Declared net interim dividend of 10 sen, translating into 6.7% dividend yield.

Highlights

• YoY: 4QFY06/15 revenue declined by 15.9% to RM2.8bn, and core net profit dropped by 31.6% to RM178.3m mainly due to higher group tax expenses and minority interests.

• QoQ: Similarly, core net profit dropped by 18.9%, outpacing decline in revenue of 11.8%, due to lower contribution from Seraya Power and domestic power generation.

• YTD: FY06/15 core net profit dropped by 5.0% to RM932.3m, mainly dragged by lower sales and margins for Seraya Power, higher losses for YES as well as higher group tax expenses.

• Prospects: Domestic power generation at Paka and Pasir Gudang are expected to expire by Sep 2015. Management has successful bid for a new short term PPAs for Paka Plant (808MW) for the period Mar 2016-Dec 2018. However we expect the new rate to be relatively low, similar to Segari new PPA extension. The prospect for Seraya Power remained bleak on overcapacity while Wessex water faces reduction in pricing and regulated return on cost of capital.

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

HOLD ()

Positives

• Strong and stable cash flow.
• Large cash piles (RM8.7bn) allowing YTLP to look for more value accretive acquisitions.

Negatives

• Increasing competitive environment for YTLC especially with the implementation of LTE networks.
• Reduction in regulated earnings for Wessex.
• Overcapacity of power generation in Singapore market.

Valuation

• Upgrade to HOLD with unchanged target price of RM1.50 based on 10% discount to Sum-of-Parts, given the recent drop in share price. We expect continuous dividend payout to support share price performance.

Source: Hong Leong Investment Bank Research - 21 Aug 2015