Results

• Within Expectations - Reported 2QFY17 and 1HFY17 core earnings of RM191.0m and RM348.4m, which is 55.8% of HLIB expectation for FY17 and 46.5% of consensus forecast.

Deviations

• Unchanged.

Dividends

• None.

Highlights

• YoY: Despite 2QFY17 revenue declining by 5.9% to RM2.5bn, and core earnings improved by 31.0% to RM191.0m mainly on lower losses from Mobile Broadband network (YES) as well as lower tax expenses.

• QoQ: Similarly, core earnings improved by 21.4% mainly due to lower losses from YES.

• YTD: In line with 17.7% decline in revenue, core earnings dropped by 11.1% as lower losses from YES was partially offset by higher losses from domestic power generation.

• Prospects: Ongoing legal tussle for the commencement of PPA extension of Paka (due to land lease issue) will continue to drag the group’s earnings. Furthermore, the ongoing competitive environment due to capacity oversupply in Singapore is expected to remain a challenge for Seraya Power. Earnings growth is only expected to come in by 2020 with the commencement of new Java power plant and Jordan power plant. Nevertheless, 60% owned YES has been showing continued improvement in terms of lower quarterly losses due to increased customer base for newly launched 4G LTE network.

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 ( ↔ )

• Despite the near term weak earnings prospect of the group, we expect its ongoing dividend payout of 10 sen to continue support its current share price, given the attractive dividend yield of 6.6%.

Valuation

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

Source: Hong Leong Investment Bank Research - 24 Feb 2017