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YTL Power International - Dividend let-down HOLD

kiasutrader
Publish date: Fri, 22 Feb 2013, 03:59 PM
kiasutrader
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- We maintain HOLD on YTL Power International (YTLP), with a lower fair value of RM1.58/share (vs. an earlier RM1.62/share) based on a 15% discount to a revised sum-of-parts value of RM1.86/share (RM1.92/share previously). 

- YTLP's lower fair value stems from a 3%-9% cut in FY13FFY15F earnings due to lower cash flow assumptions for the remaining 3 years of the Paka and Pasir Gudang power purchase contracts and higher losses for the Yes broadband services. 

- The group's 1HFY13 net profit (-9% YoY) of RM509mil was below expectations, accounting for 41% of our earlier estimate of RM1,249mil and 42% of street estimate's RM1,215mil. This was due to lower-than-expected contributions from the Paka & Pasir Gudang power plants, and lower volume of oil trading activities.

- Unusually, the group did not declare any interim dividend in this quarter - the first time since 2006. With only 0.9 sen declared in 1HFY13 vs. 2.8 sen in 1HFY12, there is  a likelihood that YTLP's full-year dividend may miss our flat YoY DPS forecast of 4.7 sen. For now, we maintain our FY13F-FY15F DPS forecast pending 3QFY13 results.

- Sequentially, YTLP's 2QFY13 net profit was flat at RM256mil as the contraction in Power Seraya's earnings from decreased trading activities and further WiMax broadband losses were largely offset by stronger associate contributions and Wessex Water's tariff hike in October last year.

- Overseas operations currently account for the group's profitable business as the RM138mil loss from YTLP's Yes has dwarfed the domestic power generation's EBIT of RM107mil (See Table 2). 

- For Power Seraya, Singapore's expanding power generation capacity is expected to exert pricing pressure on electricity prices. But the group hopes to mitigate the expected margin squeeze from its integrated trading divisions. 

- Meanwhile, WiMax's losses continue to increase, rising by 27% QoQ to RM77mil in 2QFY13. Given the group's increasing capex with the implementation of the 1Besterinet programme, we have raised our FY13F loss assumption by 25% to RM200mil. 

- The stock currently trades at a fair FY13F PE of 12x - within its three-year diluted PE band of 10x-16x. But current gross dividend yield of 3% (which could later disappoint expectations) is mild for a stock with a recurring earnings profile.   

Source: AmeSecurities
YTLPOWR (6742)
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