• YTL Power (YTL) reported a decent set of numbers, as 1QFY20 PATAMI of RM76.8m (+14% yoy) was above our expectation albeit within consensus forecasts, delivering 27% and 25% of the respective forecasts 
• We are pleasantly surprised that YTLP was able to bring Power Seraya back to profitability sooner than expected, as it was loss making since 1QFY19 
• We have revised up our EPS forecasts for FY21-23E by 2.5%-12.1% to factor in the current performance, while keeping our TP unchanged at RM0.71. As we see limited upside to share price, we are keeping our HOLD call.

The decline in Wessex Water did not come as a surprise

PBT for Wessex Water declined by 32.8% yoy to RM131m, which was not a major surprise to us, as the rates were revised lower this year, which resulted in a 17% decline in its revenue. The decline in PBT which was more severe than the decline in revenue, can be attributed to the higher depreciation costs. We are expecting the profitability to remain at current levels until the regulated asset base increases from GBP3.35bn to GBP3.89bn (+16%) by the end of the regulated period on 31 March 2025. We believe that the current profit from Wessex is still sufficient to sustain the 5sen DPS for YTLP.

Recovery in Singapore is ahead of expectations

Although we had forecasted YTLP’s Power Seraya to turn profitable before the end of 2021, we were not expecting it to achieve profitability in 1QFY21 after making losses since 1QFY19. Management has attributed the improvement to better retail and ancillary margin, higher fuel oil tank leasing rate and lower finance costs. We expect the performance to improve in coming quarters, as the overcapacity in the wholesale generation segment is expected to ease with more capacity retiring. We believe the improvement in Power Seraya’s operations would increase the certainty of the 5sen DPS payout that we forecast for FY21E.

Maintain HOLD with an unchanged TP of RM0.71

We have revised up our EPS forecasts for FY21-22E by 2.5%-12.1% to factor in the latest development, while keeping our RNAV-based TP unchanged at RM0.71 as well as our HOLD call. We believe that with its Jordan project starting to contribute in FY21E, and the improvement of its Singapore operation, YTLP’s dividend payout can recover in FY21E. Key downside risks include: 1) lower-than-expected inflation in UK and 2) higher-thanexpected losses of its mobile segment. Key upside risks include: 1) faster-than-expected recovery in the Singapore market, and 2) award of low frequency spectrum to YES.

Source: Affin Hwang Research - 27 Nov 2020