Results

• Within Expectations - Reported 3QFY16 core earnings of RM228.0m and 9MFY16 of RM620.1m (excluding impairment recovery and arbitrage from Petronas), which is 71.4% of HLIB’s expectation for FY16 and 71.9% of consensus forecast. We expect new contribution from Paka (concession extension) by 4QFY16 to improve earnings.

Deviations

• None.

Dividends

• None.

Highlights

• YoY: Revenue declined by 16.4% to RM2.2bn due to discontinuation of Pasir Gudang and Paka Power PPAs and lower contribution from Seraya Power. However, core earnings improved by 7.1% to RM228.0m due to lower effective tax expenses (following lower tax rate by Wessex).

• QoQ: Similarly core net profit improved by 56.3% from the lower effective tax expenses.

• YTD: Core net profit declined by 17.8% from the expiry of domestic PPAs by end 1QFY16, as well lower contribution from Seraya Power.

• Prospects: The extension of domestic Paka PPA (808MW) will start contribution in 4QFY16. Seraya Power remains challenging due to intense competition (overcapacity) and lower vesting contract. Similarly, YES continues to face tough competitions from other large established Telcos. Nevertheless, Wessex is expected to remain relatively stable and benefit weak RM.

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) for Seraya Singapore.

Forecasts

• Unchanged.

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 - 27 May 2016