Period  1Q14

Actual vs. Expectations 1Q14 net profit of RM234.8m came in within expectations, which accounted for 22% of our full-year FY14 estimate and 21% of market consensus.

Dividends  No dividend was declared again, making this the fourth-straight dry quarter vs. 0.94 sen declared in 1Q13.

Key Results Highlights 1Q14 net profit declined 24% sequentially from RM307.3m in 4Q13 despite topline rising 2% over the quarter to RM3.98b from RM3.88b previously. The earnings contraction was mainly driven by: (i) RM23.9m impairment of investment in associate, and (ii) RM70.5m unrealised forex losses. Segmental-wise, its local IPPs’ pre-tax profit surged 128% in 1Q14 after the power generation unit hit by impairment of receivables in 4Q13. Wessex Water reported PBT, which rose 18% QoQ while YES’s pre-tax loss narrowed to RM49.8m from RM76.2m. However, PowerSeraya posted PBT, which fell 31% over the quarter, attributable to lower electricity sales and trading volume.

 On a YoY comparison, 1Q14 net profit fell 7% from RM252.8m while revenue dipped 5% from RM4.17b. The local IPPs registered PBT, which rose 18% due to higher electricity generation sales while pre-tax profit for Wessex Water leapt 33% on tariff hike. Losses at YES also narrowed to RM49.8m from RM60.7m as its subscriber base improved. However, PowerSeraya recorded lower PBT, which declined 25% due to lower electricity sales and trading volume.

Outlook  In end-Oct, it was reported in the media that YTLPOWR had put in the lowest bid against TENAGA, 1MDB and Malakoff for a tender to build and operate a 2,000MW coal-fired plant under Project 3B. Should YTLPOWR manage to secure this project which outcome will be known in early 2014, it would be positive as it will help bridge its earnings gap as its Gen1 PPA for Paka and Pasir Gudang Power Plants are expiring in 2015. With its cash pile of RM9.47b, the group has the balance sheet to finance this c.RM10b project.

Change to Forecasts FY14 and FY15 estimates are maintained, but we may look to lower our NDPS assumption of 3.0 sen if no dividend is forthcoming in coming quarters.

Rating Maintain MARKET PERFORM

Valuation  Given its aggressive share buy back since Mar-13 (totalling 670.6m share to-date), a privatisation by its

parent company YTLCORP is the least likely scenario at the current moment. Thus, we decided to remove the previous 20% discount to its RNAV. Our new price target is now RM1.97/share based on full RNAV, from RM1.58/share.

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

Source: Kenanga