Period

3Q15/9M15

Actual vs. Expectations

At 71%/72% of our/consensus’ full-year estimates, the 9M15 net profit of RM711.7m came in within expectations as we expect the 4Q which is traditionally the strongest quarter to pick up the slack.

Dividends

No dividend was declared during the quarter.

Key Results Highlights

3Q15 net profit fell 9% QoQ to RM222.7m from RM245.1m as revenue declined 12% to RM2.68b as PowerSeraya’s earnings continued to be lacklustre. The Singaporean unit posted a 10% drop in PBT as topline plunged 22% due to lower electricity unit sold and lower non-fuel margin. On the other hand, the local IPPs’ earnings normalised with revenue and PBT rising 49% and 28%, respectively, as the poorer results in 2Q15 was due to TENAGA’s generation rescheduling program. Meanwhile, Wessex Water posted flattish earnings despite revenue inching up 2%. YES posted pre-tax loss, which widened by 14% as revenue contracted by 25%, again.

YoY, the 3Q15 net profit declined 13% from RM255.6m while revenue contracted 19%. This was mainly driven by: (i) a 22% decline in PowerSeraya’s PBT as revenue plunged 31% for the same reason stated above, and (ii) pre-tax loss widened to RM56.9m at YES from RM40.4m as revenue fell sharply by 21%. On a positive note, the local IPPs posted PBT, which surged 38% despite topline dipping 1% as there was no provision on impairment of inventories & receivable and lower depreciation charges. Wessex Water also posted strong earnings by 17% on tariff hike. YTD, 9M15 earnings fell slightly by 1% despite a higher proportion of decline in revenue of 18%, mainly due to share of profit of RM3.9m from associate from a loss of RM14.9m and unrealised forex gain and lower development cost incurred in its investment holdings segment.

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 to our FY15-FY16 estimates. We introduce FY17 forecast in which we expect earnings to grow 4.5%.

Rating

Maintain MARKET PERFORM

Valuation

Price target maintained at RM1.68/share which is at a 10% holdings company discount to its RNAV of RM1.87/share.

Risks to Our Call

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

Source: Kenanga Research - 22 May 2015