Period  1Q15

Actual vs. Expectations At 23% of both our as well as consensus’ full-year FY15 estimates, the 1Q15 net profit of RM243.8m came in within expectations.

Dividends  No dividend was declared during the quarter.

Key Results Highlights The 1Q15 net profit declined 46% QoQ to RM243.8m from RM448.4m in 4Q14 which was mainly due to a RM267.9m tax credit at Wessex Water. Stripping out the tax credit in 4Q14, 1Q15 earnings, in fact, rose 35% sequentially from RM181.0m previously. This was mainly driven by the recovery of local IPP earnings of RM66.7m from RM27.1m in the seasonally lower 4Q14. While PowerSeraya’s PBT rose 7% on the back of a 2% hike in revenue, earnings of Wessex Water dipped slightly by 1%. Meanwhile, losses at pretax level for YES widened again to RM77.9m from RM52.1m as revenue slid 23%.

 Despite revenue contracting 16%, 1Q15 net income rose 4% YoY from RM234.8m. This was mainly due to a pretax profit of RM39.1m at investment holding segment as opposed to a pretax loss of RM109.5m previously. This was attributed to RM30.8m forex gain in investment holding segment in 1Q15 while there was a forex loss of RM70.6m and RM24.0m impairment of investment in associate previously. The local IPP reported pretax profit, which rose 10% YoY thanks to higher generation of electricity sales while Wessex Water posted higher earnings by 3% YoY due to tariff hike. However, PowerSeraya saw its 1Q15 PBT plunging 51% YoY on lower units of electricity sold and lower fuel oil trading profit. On the other hand, pretax loss at YES widened from RM49.8m previously to RM77.9m in 1Q15.

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 No changes in FY15-FY16 estimates.

Rating Downgrade to MARKET PERFORM from OUTPERFORM, after share price had risen 15% in the past three months.

Valuation  Maintain our price target of RM1.70/share, which is a 10% discount to its RNAV of RM1.89/share. This implies a limited upside of only 3%.

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

Source: Kenanga