YTLP reported strong FY18 result of RM807.4m (+22.4% YoY), above HLIB and consensus expectations, mainly driven by lower effective group tax rate (higher contribution mix from UK Wessex Water with lower tax). Declared dividend of 5.0 sen/share. Maintain BUY recommendation on YTLP with unchanged SOP derived TP: RM1.45.

Above expectations. Reported core PATMI of RM273.1m for 4QFY18 and RM807.4m for FY18, above HLIB FY18 forecast of RM702m and consensus RM641m, mainly driven by lower than expected group tax expenses (excluding deferred tax), given higher profits contribution mix from Wessex Water with lower UK tax jurisdiction.

Dividend. Declared interim dividend of 5.0 sen/share for the financial year.

QoQ. Core PATMI increased 41.3% from improved contribution of UK Wessex Water (on lower operating costs), partially offset by lower contribution of Singapore Seraya (continuous competitive market and lower tank leasing margins).

YoY/YTD. Core PATMI increased 78.4% YoY and 22.4% YTD from improved contribution of UK Wessex Water (on approved higher rates and improved cost structure) and commencement of Paka Power since Sep 2017, partially offset by weakened margin from Seraya Power.

Outlook: Earnings are expected to remain relatively stable in the next few years (supported by Wessex Water) prior to the commencement of Jordan Attarat Power and Indonesia Jawa Power by 2020. Uncertainty arises on the turnaround of Yes Communication, given the recent change in government which may affect its Bestari project as well as further drag from Singapore electricity wholesale market.

Forecast. Unchanged for FY19 and FY20.

Maintain BUY, TP: RM1.45. We maintain BUY recommendation on YTLP based on unchanged SOP-derived TP of RM1.45. We expect sustainable dividend payout on YTLP strong cash flow and potential treasury share distribution (accumulated treasury shares 5.9% of total outstanding shares).

Source: Hong Leong Investment Bank Research - 30 Aug 2018