Results

• Within Expectations - Reported 2QFY16 core earnings of RM145.8m and 2HFY16 of RM392.1m (excluding impairment recovery from Petronas), which is 45.0% of HLIB’s expectation for FY16 and 44.3% of consensus forecast. We expect new contribution from Paka (concession extension) by 4QFY16 to improve earnings.

Deviations

• None.

Dividends

• None.

Highlights

• YoY: 2QFY06/15 revenue declined by 13.7% to RM2.6bn, while core net profit dropped by 48.4% to RM145.8m (excluded gain of RM190.6m from impairment recovery and arbitrage) mainly due to discontinued contribution from Paka and Pasir Gudang PPAs.

• QoQ: Similarly core net profit declined by 40.8% from the expiry of domestic PPAs.

• YTD: Core net profit declined by 27.5% from the expiry of domestic PPAs by end 1QFY16, as well lower contribution from Seraya Power and higher losses from Yes.

• Prospects: The extension of Paka Plant (808MW) PPAs will start contribution in 4QFY16, while earnings of Seraya Power remained lackluster due to intense competition and lower vesting contract. Futhermore, Yes is expected to remain in the red. Nevertheless, Wessex water is expected to remain relatively stable and benefit from RM depreciation.

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 tweak our model slightly by cutting earnings for FY16-18 marginally downwards by 0.3-1.4%.

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 unchanged Target Price of RM1.45 based on 10% discount to Sum-of-Parts.

Source: Hong Leong Investment Bank Research - 26 Feb 2016