We are maintaining our HOLD call on YTL Power (YTLP), with an unchanged TP at RM1.50. Although FY17 PATAMI at RM673m (-35% yoy) is within our estimates but slightly below consensus, the cut in DPS to 5.0sen (from 10sen in FY16) is certainly below expectations. The cut in DPS might have a negative impact on stock price, as higher yields were supposed to compensate for the relatively stagnant growth before its new projects start contributing beyond a 3-4 year horizon. Thus, we see limited upside potential at current share-price levels.

Expecting a Better FY18E From Paka Power Plant

PATAMI growth is likely to deliver a strong yoy growth in FY18E, mainly due to the low base effect, as the RM104m losses before tax for the domestic generation business in FY17 will minimize as its Paka Power Plant will start commencing on 1 September 2017. Without the losses from the segment, YTLP’s PBT should be 12% more than the current RM867m PBT reported in FY17.

Mobile Broadband Yet to Breakeven But Improving

YTLP’s mobile business is still loss making, however the losses before tax for the year has reduced significantly and by more than 57% yoy to RM119m (from -RM277m), on the back of a 14% yoy improvement in revenue. Although YTL is on the right track to achieve breakeven, there could still be downside risk, if the telco operators decide to start lowering prices to maintain market share.

Wessex Water Profit Volatility From Forex

PBT for the segment is down by 9% yoy, which can be attributed to the weakness in GBP against RM, in which RM has strengthen by more than 11% during the same period. As we are expecting the RM to continue to strengthen in coming quarters, it is fair to assume that the growth from the price increases could be cap.

Maintain HOLD With Unchanged TP of RM1.50

We have tweaked our EPS for FY18-19E to impute in the higher financing cost from the recent bond raising exercise, and lowered our DPS estimates based on the FY17 payout. Given the lack of short-term catalyst, we are keeping our HOLD call with and unchanged TP at RM1.50.

Source: Affin Hwang Research - 30 Aug 2017