Results

• Below Expectations - Reported 4QFY16 core earnings of RM136.9m and FY16 of RM711.1m (excluding impairment recovery from Petronas and deferred tax credit adjustment on its associate Indonesia Jawa Power), achieving only 81.9% of HLIB’s expectation for FY16 and 89.0% of consensus forecast.

Deviations

• Lower than expected earnings for domestic power plants (due to land dispute with Tenaga), Singapore Seraya Power (lower vesting contract) and YES mobile broadband (increased investments and operational costs).

Dividends

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

Highlights

• YoY: Revenue declined by 24.1% to RM2.2bn on delayed commencement of Paka PPA and lower vesting power demand for Seraya, while core net profit dropped by 24.9% to RM136.9m (excluded deferred tax credit adjustment gain for its associate Indonesia Jawa Power), being dragged by Paka, Seraya and YES (higher investment and operational costs).

• QoQ: Similarly core net profit declined by 24.9% from larger losses of YES.

• FY16: Revenue declined by 14.1% and core earnings dropped by 24.2% on losses from domestic power plant and YES, as well as lower profits from Seraya.

• Prospects: The extension of Paka Plant (585MW) PPA is likely to be delayed further due to ongoing land dispute with Tenaga, while Seraya and YES are likely to drag YTLP earnings outlook in the near term. Earnings growth is only expected by 2019-2020 from new power plant commencement (Java Power and Jordan Power).

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 (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 Aug 2016