Lacking of Short and Mid Term Growth Catalyst

We are maintaining our HOLD call on YTL Power (YTLP), despite its 9MFY17 PATAMI at RM474mn being below both our and market expectation (constitutes 66% of market FY17 forecast and 52% of ours), as we believe the YTLP will raise its dividend payout to above 100% to maintain the 10sen DPS similar to FY16.

Wessex Water Impacted by Strengthening of MYR

The PBT for the segment was lower by 5.9% YoY for 9MFY17 to RM670mn, which can be attributed to the strengthening of MYR against GBP for the period. Wessex Water is a highly regulated business with a fixed revenue cap and fairly stable demand. As we are expecting MYR to strengthen is coming quarters, it is fair to assume that the negative PBT growth is unlikely to reverse for the remaining of the year.

Domestic Power Business Will Start Contributing in FY18

Although YTLP has managed to sign the PPA extension for its Paka Power Plant, operation will only start commencing on 1 September 2017, hence the losses from the plant idling will continue into 2QFY18. Year to date, losses from the domestic power business is at RM90mn; without those losses YTLP PBT will be 13% higher than the current RM644mn.

Mobile Broadband Business Indicates Stability

YTLP’s mobile broadband business is still loss making. However, the losses (pretax level) on a quarterly basis have successfully maintain at RM15mn – RM16mn, which is significant as it indicates that losses are not widening thus allowing management to focus on working towards breakeven. However, there could be downside risk, if the telco operators start lowering prices to maintain market share.

Maintain HOLD With Unchanged TP of RM1.60

We maintain our HOLD call on YTLP with an unchanged TP of RM1.60, based on 10% discount to our RNAV of RM1.78. While the group has good prospects from the new power plants, YTLP lack of short-term catalyst for growth is likely to keep share price muted. Nevertheless, we are still YTLP to maintain an annual DPS of 10sen for FY17.

Source: Affin Hwang Research - 26 May 2017