Results

• Below Expectations - Reported 1QFY16 core earnings of RM246.3m, which is 24.5% of HLIB’s expectation for FY16 and 26.8% of consensus forecast. We expect weaker contribution from Paka and Pasir Gudang for the remaining quarters, given the expiry of PPAs in September 2015.

Deviations

• Lower than expected contribution from Seraya Power.

Dividends

• None.

Highlights

• YoY: 1QFY06/15 revenue declined by 4.1% to RM3.2bn, and core net profit dropped by 4.8% to RM246.3m mainly due to lower contribution from Singapore Seraya Power and higher losses from Yes.

• QoQ: Core net profit improved by 33.3% on the back of higher domestic power generation sales and lower provisions from domestic power generation (Paka and Pasir Gudang).

• Prospects: With the expiry of PPAs for Paka and Pasir Gudang in Sep 2015, we expect lower earnings in the coming quarters. Paka Plant (808MW) PPAs will only be extended for the period Mar 2016-Dec 2018 with lower rates. The prospect for Seraya Power remained bleak on overcapacity.

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

• We cut forecast by 19.1% and 27.5% for FY16 and FY17 respectively after accounting for lower contribution from Seraya Power.

Rating

HOLD

Positives

• Strong and stable cash flow.
• Large cash piles (RM9.5bn) 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

• Maintained HOLD with lower Target Price of RM1.45 (from RM1.50) based on 10% discount to Sum-of-Parts.

Source: Hong Leong Investment Bank Research - 27 Nov 2015