Period     3Q13 

Actual vs. Expectations   The 9M13 net profit of RM765.1m accounted for only 60% of our FY13 full-year estimate and 65% that of the market consensus.

The disappointing set of results was mainly driven by higher-than-expected depreciation charges for the local IPPs as the group’s 9M13 depreciation charge of RM934.5m was already 98% of our full-year estimate of RM952.2m. 

Dividends    No dividend was declared, the second straight quarter without any quarterly dividend payments. The last time the company did not declare a quarterly dividend was in 1Q08.

Key Results Highlights    Despite revenue declining 11% QoQ, the 3Q13 net profit did better at a flat RM256.2m. This was attributable to an improved EBITDA margin and a lower effective tax rate of 23% vs. 27% as forex gains were not subject to taxation. While the local IPPs were hit by higher maintenance and depreciation charges, PowerSeraya managed to improve its PBT margin to 6% from 5% even though its revenue contracted 14%. Pre-tax losses at YES narrowed to RM55.1m from RM77.0m previously. On the other hand, the 3Q13 net profit slid 3% YoY as the revenue declined 8% YoY.

YTD, the 9M13 net earnings dropped by 7% to RM765.1m although revenue expanded by 2%. This was mainly attributable to declining earnings from the local IPPs (which dropped 42% at PBT the level due to higher maintenance and depreciation costs) and PowerSeraya (-2% due to lower electricity sales). On the other hand, YES’ pre-tax loss narrowed 10% to RM192.9m.

Outlook    The company’s cash pile remained strong at RM10.9b but its dividend payouts have been weakening consistently. Thus, we strongly believe that the group is conserving cash for more M&A opportunities, which could give rise to good bargain opportunities given the current global economic uncertainty.  

Change to Forecasts      We have trimmed our FY13-FY14 estimates by 16%-18% after adjusting for higher depreciation chargers and fine-tuning our estimates. We have also cut our NDPS estimates to 3.0 sen from 5.4 sen after lowering our dividend payout estimate to 20% from 30%. 

  We have also introduced our FY15 forecast, where we expect the EPS to grow at 6.8% with a NDPS of 3.0 sen, implying a 20% earnings payout. 

Rating   Maintain MARKET PERFORM

Valuation     We have changed our valuation method to RNAV from targeted net yield since the payout is less predictable now. Thus, our new price target is RM1.58/share, at a 20% discount to its RNAV, from RM1.51/share based on a 3.5% targeted FY13 net yield previously. 

Risks    Lower dividend payouts, widening YES’ losses and the rise in global economic risks, especially in Europe.

Source: Kenanga