YTLP reported core PATMI of RM78.7m for 4QFY20 (-31.0% QoQ, -38.1% YoY) and RM362.0m for FY20 (-39.6% YoY). We deem the results in line with HLIB FY20 forecast (104.5%), but above consensus (114.9%). The group has been strategizing in turning around the loss-making assets: Yes Communication (aggressive acquisition of subscriber base) and Seraya Power (acquisition of Tuaspring), as well as working towards commencement of new earnings contribution from new PPAs: Tg Jati Power and Attarat Power. Declared distribution of 1 treasury share for every 16 existing shares (6.25% yield) Maintain HOLD with unchanged TP: RM0.75 based on 20% discount to SOP: RM0.94.

Within expectations. Reported core PATMI of RM78.7m for 4QFY20 (-31.0% QoQ, -38.1% YoY) and RM362.0m for FY20 (-39.6% YoY). We deem the results within HLIB’s expectation (104.5%), but above consensus (114.9%). We have excluded the impact of higher deferred tax expense in 4QFY20, as Wessex had to re-measure its deferred tax assets (for 2020-2021) following current government repealed previous legislation to reduce UK corporate tax reduction to 17%, now back to 19%.

Dividend. Announced distribution of 1 treasury share for every 16 existing shares (ex date: 27 Oct), translating into 6.25% dividend yield. No cash dividend announced, as the company is buffing up its cash coffer for potential opportunities.

QoQ. Core PATMI declined -31.0% QoQ, mainly due to lower contribution from UK Wessex Water, following lower tariff under the new regulatory period 2020-2025, while Singapore Seraya recorded lower losses on improved margins from on -going cost cutting and improved retail contributions and higher fuel oil tank leasing. Profit from Paka Power Generation and losses from Yes Communications remained stable during Covid-19 and MCO period.

YoY/YTD. Core PATMI deteriorated -38.1% YoY and -39.6% YTD, mainly dragged by Yes Communications, following the discontinuation of 1 Bestarinet contract, which was partially offset by the lower loss from Seraya Power on lower finance charges charges and higher retail and tank leasing margin.

Outlook. YTLP will remain dragged by loss-making Seraya Power and Yes Communications in the near term, while Wessex Water will be subjected to lower allowable profits with the new implementation of Business Plan 2020-2025. The commencement for Attarat Jordan Power has been delayed to end 2020 (from June 2020), due to restriction of work and border closing. On the positive side, management is making progress in securing financing for the new Tg Jati power project post securing Business Viability Guarantee Letter from Indonesia Government. The acquisition and integration of Tuaspring power generation assets by early FY21 will also allow Seraya to grab higher power market share in Singapore at lower fuel cost (no lock-in take-or-pay LNG pricing) and allow for potential synergies with the existing Seraya power assets.

Forecast. Unchanged.

Maintain HOLD, TP: RM0.75. We maintain our HOLD recommendation with unchanged TP: RM0.75 based on 20% discount to SOP: RM0.94. While we expect near term outlook to be affected by Covid-19, the group has been strategizing in turning around with the aggressive acquisition of subscriber base (Yes Communications), acquisition of Tuaspring to improve Singapore power market share with lower fuel cost advantage and synergistic benefit, and commecing new PPAs – Tg Jati and Attarat.

Source: Hong Leong Investment Bank Research - 1 Sept 2020