The decline in YTL Power (YTLP)’s PATAMI for 1HFY18 to RM 269m (- 14% yoy), is tracking along our expectation but short of consensus, as results constitutes 46% and 35% of our respective forecasts. Due to the maturity of its assets, we see very limited growth in the nearterm, as its 2 new projects, Tanjung Jati Power and Attarat Power, are only expected to start contributing by 2HFY21. We maintain our HOLD call with an unchanged TP of RM1.30.

Core Segments PBT Are Down Yoy

Despite the increase in 1HFY18 revenue for its UK operation (Wessex Water) by 15.0% yoy, PBT was down by 7.0% yoy due to the higher financing cost, which caused PBT margins to fall to its lowest level for the past 5 years. For its Singapore (Power Seraya) operation, the contraction in 1HFY18 PBT is close to 40% yoy, due to an increase competition in the wholesale market. However, we believe that the worst is over for its Singapore operation, as they have managed to record 2 consecutive quarters of growth. The higher effective tax rate during the quarter has also put further pressure on earnings growth, as both the UK and Singapore operation are the largest earnings contributors to the group.

Paka Power Plant Contribution Is Not Sufficient to Turn Things Around

Although Paka Power Plant has started contributing positively in 2QFY18, the turnaround in profitability is not sufficient to compensate for the lower profitability of its UK operation and Singapore operation. Paka Power PBT has risen to RM14m in 2QFY18, a major improvement from the losses of RM26m in 2QFY17. We expect the PBT for the segment to remain stable until the end of the PPA agreement in 2021. The overall weaker performance during the quarter indicates the importance of new projects to help deliver growth, however, both Attarat Power project and Tanjung Jati Power project (if they achieve financial close soon) will only start contributing by 2HFY21.

Maintain HOLD But With Unchanged TP of RM1.30

Nevertheless, the results are largely inline with our forecast, hence, we are keeping our EPS unchanged. We are maintaining our sum-of-parts TP of RM1.30 and HOLD call as we see very limited growth catalyst for the stock in the short-medium term, as its current assets are already mature.

Source: Affin Hwang Research - 26 Feb 2018