Period  2Q15/1H15

Actual vs. Expectations  At 45% of our full-year FY15 estimates, the 1H15 net profit of RM489.0m came below expectation. But it was within market expectations at 49% of consensus’ full-year estimate.

 The variance to our estimates was mainly due to our over-bullish estimation of PowerSeraya earnings.

Dividends  No dividend was declared during the quarter.

Key Results Highlights  Despite topline declining 10%, the 2Q15 net profit inched up 1% QoQ to RM245.1m from RM243.8m. This was mainly helped by the recovery of PowerSeraya earnings and better Wessex Water results. In fact, PowerSeraya managed to post 24% QoQ growth in PBT despite revenue dipping 12% while Wessex Water posted a 17% rise in PBT while turnover remained flattish. Meanwhile, local IPPs registered 43% decline in revenue as a result of TENAGA’s rescheduling of generation program, resulting in pre-tax profit contracting 22%. On the flipside, pre-tax loss for YES narrowed to RM50.0m from RM77.9m as revenue surged 38%.

 YoY, the 2Q15 net profit dipped 1% from RM247.0m while revenue contracted 19%. The substantial decline in topline was mainly driven by: (i) lower electricity units sold at PowerSeraya, and (ii) the lower revenue from the local IPPs as stated above. However, the lower decline in bottom-line was helped by: (i) 18% rise in Wessex Water earnings on tariff hike, (ii) there was no provision in local IPPs, and (iii) higher earnings investment arising from higher dividend received, interest income and associate incomes. Similarly, the 1H15 earnings inched up 1% while revenue declined by 17% compared to 1H14.

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 trim FY15-FY16E earnings by 6%-8% as we lowered PowerSeraya earnings assumption but this is mitigated by higher Wessex Water earnings assumption

Rating Maintain MARKET PERFORM Valuation  Our new RNAV/share is RM1.87 from RM1.89 after adjusting for PowerSeraya and Wessex Water earnings. With an unchanged 10% discount to its RNAV, our new price target is RM1.68 from RM1.70 previously.

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

Source: Kenanga