Core PATMI of RM161.5m for 3QFY21 (+36.3% QoQ, +41.6% YoY) and RM381.8m for 9MFY21 (+34.8% YoY) was above both HLIB FY21 forecast (98.1%) and consensus (100.1%), driven by stronger turnaround of Seraya Power and lower losses from Yes Communication. We expect Seraya Power to maintain its earnings momentum with upcoming acquisition of Tuaspring Power, while riding on Singapore’s economic recovery. Yes Communication is expected to continue improving its customer base due to increasing demand for data packages during on-going lockdown measures. Adjusted earnings for FY21-23 by +29.6%, +20.9% and +14.6% respectively. Upgrade to BUY (from Hold) with higher TP: RM0.85 (from RM0.75) based on 10% discount to SOP: RM0.93.

Above expectation. Reported core PATMI of RM161.5m for 3QFY21 (+36.3% QoQ, +41.6% YoY) and RM381.8m for 9MFY21 (+34.8% YoY), above both HLIB’s expectation (98.1%) and consensus (100.1%), mainly on stronger-than-expected contributions from Seraya Power and lower losses from Yes Communication. Major EIs for 9MFY21 include net provisions and impairments of -RM18.0m and unrealised forex gain of RM3.9m.

Dividend. Declared interim dividend of 2 sen/share (ex-date: 14 Jun 2021).

QoQ. Core PATMI improved +36.3% QoQ to RM161.5m mainly due to lower losses of Yes Communication as the mobile operator registered higher revenue on increased subscriber base resulting from the launch of affordable data plans, bolstered by partnerships and collaborations.

YoY/YTD. Core PATMI improved +41.6% YoY and +34.8% YTD, mainly driven by the turnaround of Seraya Power operation (on higher retail margin and lower finance cost) and lower losses from Yes Communication, partially offset by weaker contribution from Wessex Water (combination of lower regulated tariffs and increased depreciation charges on increased capex) and Investment Holding operation (lower share of associate income and interest revenue).

Outlook. Seraya Power has continued to maintain its profitability into 3QFY21 (since 1QFY21) and is expected to sustain its uptrend as Singapore economy recovers in 2021 with the on-going vaccination program and stimulus plan. The upcoming complete acquisition of Tuaspring 396MW Co-gen (pending approval by Public Utilities Board of Singapore) will also further enhance the earnings of the segment. Yes Communication will continue to expand its subscriber base while benefitting from government’s recent JENDELA initiative to upgrade Malaysia’s digital communication infrastructure. However, the commencement of Attarat Power is expected to face further uncertainties following recent arbitrations raised by the Jordan government and NEPCO (Jordan National Electric Power Company) on grounds of gross unfairness against the power company. Malaysia Paka Power extension will also end by 30 June 2021, while management has not indicated any plans for the plant yet.

Forecast. We increased our earnings for FY21-23 by 29.6%, 20.9% and 14.6% respectively as we imputed stronger contribution from Singapore Seraya and lower losses from Yes Communication.

Upgrade to BUY, TP: RM0.85. We upgrade our recommendation to BUY (from Hold), with TP: RM0.85 (from RM0.75), after earnings adjustment and lower the discount rate to 10% to SOP: RM0.93. We expect Singapore Seraya to gain further traction with the complete acquisition of Tuaspring Power, to ride on Singapore’s economic recovery. Yes Communication will continue to gain subscriber base during current pandemic due to increasing demand for data packages

Source: Hong Leong Investment Bank Research - 31 May 2021