Results

• Within Expectations - Reported 1QFY18 core earnings of RM165.7m, which was 19.4% of HLIB’s expectation for FY18 and 20.6% of consensus forecast.

Deviations

• Despite the relatively weak 1QFY18 result, we deem it in line as we expect stronger earnings in the subsequent quarters given the full contribution from Paka PPA extension (expected turnaround from current quarter losses).

Dividends

• None.

Highlights

• YoY: 1QFY18 revenue improved by 10.2% to RM2.6bn on the commencement of domestic Paka PPA in Sep (1 month contribution) and higher contribution from all other segments. Core PATAMI also improved by 5.3% to RM165.7m on lower losses from domestic Paka and Yes communication, which was partially offset by higher financing expenses for both Wessex Water and Seraya Power.

• QoQ: Core net profit increased by 17.4% on higher earnings contribution from Wessex Water and lower losses from Yes communication.

• Prospects: Earnings growth for the subsequent quarters will be supported by the newly commenced domestic Paka PPA (Sept 2017) and potential turnaround of YES communication (from higher subscriber base), while contributions from Singapore Seraya and Wessex Water are expected to remain flat. The developments of Jordan Attarat Power and Indonesia Jawa Power are on track with expected contribution in 2020.

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

BUY ( ↔ )

• YTLP’s earnings is expected to increase from 2QFY18 following the commencement of Paka Power PPA extension in Sep 2017 and potential turnaround of YES. Long term growth will be driven by commencement of Jordan Attarat Power and Indonesia Jawa Power by 2020.

Valuation

• Maintain BUY with unchanged Target Price of RM1.60 based on 10% discount to Sum-of-Parts. We believe the group’s earnings has already bottomed and is expected to recover with the commencement of Paka Power and gradual turnaround of Yes communication.

Source: Hong Leong Investment Bank Research - 23 Nov 2017