Period  4Q14/FY14

Actual vs. Expectations The full-year FY14 results were below expectations with core net profit of RM918.4m coming 15% and 14% off our estimates and market consensus. The main discrepancy was due to weaker-than-expected earnings from local IPPs & PowerSeraya in 4Q14 while losses at YES widened.

Dividends  After six quarters without dividend payout, it surprised us with a 10 sen NDPS in 4Q14. (ex-date: 29 Oct; payment date: Nov 14) The last time we saw a full-year NDPS of at least 10 sen payout was in FY10.

Key Results Highlights Reported 4Q14 net profit surged 75% QoQ to RM255.6m mainly due to a total of RM267.9m tax credit at Wessex Water. Stripping out the tax credit, 4Q14 core earnings contracted 29% to RM181.0m.

PowerSeraya’s PBT fell 35% while revenue dipped 2% due to lower units of electricity sold. The local IPP had a seasonally weak quarter which saw PBT declining to RM27.1m from RM48.4m while pretax losses at YES widened again to RM52.1m from RM40.4m. Wessex Water continued to enjoy higher earnings, which rose by 2%.

 YTD, the FY14 core earnings fell 13% to RM918.4m as revenue declined 9% over the year. This was mainly due to lower earnings from PowerSeraya as it continued to face tough business environment across the causeway. While local IPPs posted slightly higher PBT of 4%, Wessex Water earnings jumped 18% as topline grew 16% thank to new higher regulated price. Losses at YES also narrowed to RM170.4m at PBT level from RM269.1m as revenue soared 87%.

Outlook  Although the strong SGD should benefit YTLPOWR, the electricity market in Singapore remains competitive with new capacity coming onstream. While the PPAs for local IPPs are expected to expire soon, earnings prospect for YES is 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 We cut FY15 estimates by 6% on: (i) fine-tuning of FY14 actual figures, and (ii) lower PowerSeraya’s earnings, but keep 1 sen NDPS unchanged

 We launch FY16 estimates where earnings are set to decline by 2% as the PPA for local IPPs expires.

Rating Maintain OUTPERFORM

Valuation  We have rolled-over our valuation base-year to FY15; new price target is now RM1.70/share from

RM1.77/share, which is a 10% discount to its RNAV of RM1.89/share from RM1.97/share. Our new RNAV assumes zero value for the local IPPs.

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

Source: Kenanga