Period  3Q14/9M14

Actual vs. Expectations At 68% of both our full-year forecasts as well as consensuses, we deem the 9M14 net profit of RM737.4m to be within expectations as the coming 4Q is seasonally the strongest quarter for the year.

Dividends  With no dividend declared during the quarter, this is the sixth quarter without a regular cash dividend. Note that it distributed a 1-for-20 treasury share in 2Q14, which implied a 5% yield back then.

Key Results Highlights Although topline contracted 12% to RM3.3b, which was due mainly to weakened sales from PowerSeraya and YES, 3Q14 net profit rose 3% QoQ to RM255.6m due to a tax credit as Wessex Water enjoyed a favourable change of tax rate. Lower electricity unit sold resulted in PowerSeraya’s 3Q14 revenue declining 18% while PBT plunged 35%. YES’ pretax loss widened to RM40.4m from RM28.1m as revenue contracted 15%. Elsewhere, local IPPs and Wessex Water posted flattish pretax profit as turnover inched up marginally by 1%-2% over the quarter.

 YoY, 3Q14 net profit was flattish from RM256.2m in 3Q13, despite revenue dipping 10%, as it was attributed to the Wessex Water’s tax credit. PowerSeraya remains an earnings dampener where its pretax profit fell 30% as revenue declined 21% over year on increased generation capacity in Singapore. YES’ pretax loss narrowed from RM55.1m in 3Q13 as revenue leapt 63%. In addition, both local IPPs and Wessex Water posted 11%-12% earnings growth as the former had higher depreciation charges last year while the new higher regulated price drove the latter’s earnings higher.

Outlook  Although the strong SGD should benefit YTLPOWR, electricity market in Singapore remains competitive with new capacity coming into the market. While the PPAs for local IPPs are expected to expire soon, earnings prospects for YES are set to be better judging from its growing subscriber base. For Wessex Water, earnings are expected to be fairly flattish until it gets the next tariff revision.

Change to Forecasts No changes to our FY14-FY15 estimates.

Rating Maintain MARKET PERFORM

Valuation  Retain our price target of RM1.77/share which is a 10% discount to its RNAV of RM1.97/share.

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

Source: Kenanga