YTLP reported core PATMI of RM84.3m for 1QFY20 (-33.7% QoQ, -41.4% YoY), below HLIB FY20 forecast (13.4%) and consensus (15.9%), dragged by widened loss of Seraya and Yes. Cut earnings for FY20-21 by 44.9% and 48.7% respectively and introduce FY22 earning at RM385.5m. Downgrade to HOLD (from Buy) with lower TP of RM0.68 (from RM0.88) based on unchanged 20% discount to SOP: RM0.86.

Below expectation. Reported core PATMI of RM84.3m (-33.7% QoQ, -41.4% YoY) for 1QFY20, below HLIB (13.4%) and consensus (15.9%) expectations, mainly dragged by enlarged losses of Seraya Power and Yes Communications.

Dividend. None.

QoQ/YoY. Core PATMI deteriorated 33.7% QoQ and 41.4% YoY, dragged by enlarged losses in Seraya Power (lower vesting contract and loss on sales of fuel oil) and Yes Communication (discontinuation of 1 Bestarinet contract).

Outlook. YTLP will remain dragged by loss-making Seraya Power and Yes Communications in the near term, while Wessex Water is subject to lower allowable profits with the upcoming implementation of Business Plan 2020-2025. Nevertheless, we take comfort on the scheduled commencement of Attarat Jordan Power in mid- 2020. Tg Jati Power is still working towards achieving financial close, potentially delaying plant commencement into 2024-2025. Management is strategizing to turnaround Yes Communciations by leveraging on its Telegraph product in tandem with the implementation of national fiberalization plan, industry 4.0 and 5G network.

Forecast. Cut earnings for FY20 by 44.9% and FY21 by 48.7%. Introduce FY22 PATMI at RM385.5m.

Downgrade to HOLD, TP: RM0.68. Post distribution of 5 sen dividend coupled with cut in forecasts, we downgrade our recommendation to HOLD (from Buy) with lower TP: RM0.68 (from RM0.88) based on unchanged 20% discount to SOP of RM0.86. Despite the dismal performance, we note that YTLP is trading at P/B valuation of only 0.4x with potential dividend of 3 sen (usually divvy in 4Q), translating into 4.3% yield. Furthermore, YTLP has accumulated 482.9m treasury shares (6.3% of current outstanding share), giving potential for future share distribution.

Source: Hong Leong Investment Bank Research - 3 Dec 2019