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YTL Power - Steady earnings but lower dividend payout HOLD

kiasutrader
Publish date: Fri, 24 Feb 2012, 10:58 AM

' We maintain our HOLD call on YTL Power International Bhd(YTLP), with a fair value of RM2.05/share based on a 15% discount to oursum-of-parts (SOP) value of RM2.42/share.
 
' YTLP's 1HFY12 net profit of RM248mil came in within expectations,accounting for 48% of our FY12F earnings of RM1,168mil and 45% of streetestimate's RM1,244mil. Hence, we maintain FY12F-FY14F earnings.

' But YTLP declared a second interim single-tier dividend of0.9 sen/share, half of the previous quarter's, likely due to the group'supcoming investment plans in new utilities and WiMax projects. The 1HFY12dividend of 2.8 sen/share represents a payout ratio of 36% vs. our earlier assumptionof 50%. Hence, we have reduced FY12F-FY13F dividends by 50%, which translatesinto an unexciting yield of 3%. 

' Sequentially, YTLP's 2QFY12 pre-tax profit rose 28% to RM314mildue to:- (1) higher electricity sales and lower maintenance charges for thepower division; (2) fair value adjustments for fuel and lower financing costsfor PowerSeraya; and (3) higher forex gains which partly offset investmentlosses. 

' Overseas operations accounted for 88% of the group's 1HFY12pre-tax profit, for which the Malaysian-based gasfired power generation plantsand 35%-owned PT Jawacontributed 23%, UK's Wessex Water 28% and Singapore's PowerSeraya 49% (See Table 2). 

' In 1HFY12, the new mobile broadband division registered a higherloss of RM197mil (vs. RM28mil in 1HFY11) due to the division's start-up andincreasing fixed operating costs.

' The group plans to install Yes 4G connectivity in Proton'ssoon-to-be launched P3-21A sedan and future models.While this is an innovativestrategy to carve out a niche, we await further news of market acceptance forYes' service and price plans. Hence, we maintain our FY12FFY14F lossassumptions of RM100mil-RM250mil for thegroup's Yes division. Recall that thegroup indicated that Yes will need a subscriber base of 1 million (vs. over 300,000currently) to break even.

' We also remain concerned about the group's proposedinvestmentin a 30% stake in an Estonian state oil company-led oil shale project in Jordancomprising an oil plant with a capacity of 38,000 barrels/day and a 900 Mega Wattoil-shale fired power plant, which could cost US$5bil.

' The stock currently trades at a fair CY12F PE of 12x ' withinits three-year diluted PE band of 10x-16x.

Source: Amesecurities 
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