YTLP reported disappointing 1QFY19 result of only RM143.9m (achieved only 18.3% of HLIB forecast), dragged by the loss in Seraya Power on lower vesting contract level and lower retail non fuel and tank leasing margin. Cut earnings for FY19 and FY20 by 15.2% and 19.0%, and introduce FY21 earnings at RM857m (+16.0% YoY). Maintain BUY recommendation with lower TP: RM1.25 (from RM1.45) based on 15% discount to SOP: RM1.47. We believe YTLP is currently trading attractively at 0.6x P/B while its dividend payout is sustainable from the stable Wessex Water and Paka Power.

Below expectation. Reported core PATMI of RM143.9m for 1QFY19, achieved only 18.3% of HLIB FY19 forecast and 20.3% of consensus. The lower than expected core PATMI was mainly dragged by the loss in Singapore Seraya Power, affected by lower vesting contract level.

QoQ. Core PATMI decreased 13.3%, dragged by the loss in Seraya Power (lower vesting contract, lower retail non-fuel and tank lease margin) and lower contribution from Wessex Water (higher finance cost), which was partially offset by the profit of Paka Power (resumption of PPA extension) and lower loss from Yes Communication.

YoY. Core PATMI decreased 18.4%, mainly on loss in Seraya Power and lower core contribution from Wessex Water.

Outlook: Near term earnings and cash flows are expected to be supported by the sustainable Wessex Water and Paka Power, offsetting the uncertainty in Seraya Power prior to potential recovery when Seraya Power ending the take-or-pay contract for LNG supply by CY2020. Furthermore, the commencement of Jordan Attarat Power and Indonesia Jawa Power by 2020 would provide further earnings upside to the group.

Forecast. We cut our earnings forecast for FY19 and FY20 by 15.2% and 19.0%, mainly to account for the lower contribution from Seraya Power in the near term. We introduce FY21 earning at RM857m, a growth of 16.0% on turnaround of Seraya Power and new contribution from Jordan Attarat.

Maintain BUY, TP: RM1.25. We cut our TP to RM1.25 (based on 15% discount to SOP of RM1.47) from RM1.45 following the earnings adjustments and higher holding co discount of 15% (from 10%). We maintain BUY recommendation as YTLP is currently trading at attractive 0.6x P/B while its high dividend payout is sustainable from the stable Wessex Water and Paka Power.

Source: Hong Leong Investment Bank Research - 26 Nov 2018