Period

4Q15/FY15

Actual vs. Expectations

FY15 net profit of RM901.2m fell short by 10% of our estimates, and 7% that of market consensus, due to higherthan- expected depreciation charge for local IPP in 4Q15 which was RM116.3m or 37% higher, QoQ.

Dividends

A 10.0 sen NDPS was declared in 4Q15, (ex-date: 05 Oct; payment date: 23 Oct) which was the same as 4Q14 but higher than our assumption of 1.0 sen.

Key Results Highlights

4Q15 net profit declined 9% QoQ to RM189.4m despite revenue rising 6%, due mainly to the depreciation mentioned above. The higher deprecation resulted in local IPP’s PBT plunging 94% to only RM4.1m from RM66.7m previously. Meanwhile, PowerSeraya continued to see declining PBT, which fell 36% to RM53.6m, no thanks to lower vesting non-fuel margin and volume coupled with lower margin from retail contract. While Wessex Water’s earnings were flattish, losses at YES narrowed 8% to RM52.1m on the back of higher revenue growth of 24%.

Although revenue declined 15%, 4Q15 core profit rose 5% YoY from RM181.0m, due the higher Wessex Water earnings arising from the softening of MYR against GBP. As such, Wessex Water’s PBT rose 18% to RM239.7m from RM202.6m previously. Meanwhile, local IPP’s earnings contracted 85% on abovementioned depreciation charges while PowerSeraya’s earnings declined 23% on lower electricity unit sold coupled with lower prices for retail contracts. The losses at YES were maintained at RM52.1m. YTD, FY15 core profit fell 2% to RM901.2m from RM918.4m due to higher taxation. At PBT level, FY15 earnings rose 10% to RM1.23b, attributable mainly to a stronger GBP which contributed to higher Wessex Water earnings.

Outlook

In the result note, YTLPOWR confirmed that the Paka Power Plant which PPA is expiring end of next month, has been awarded a PPA extension for Mar 2016 to Dec 2018 from EC, but terms and conditions discussions are still ongoing.

With PPA extension typically less lucrative while YES is still loss making, YTLPOWR’s earnings are largely offshore driven. Thus, the sharp MYR depreciation of late works in its favour. Our sensitivity study shows a 5% fall in MYR against GBP/SGD/USD would result a 4.4% rise in FY16 earnings.

Change to Forecasts

We have revised our long-term GBPMYR, SGDMYR and USDMYR assumptions to 5.50, 2.70 and 3.80, respectively from 5.00, 2.40 and 3.00 previously. We are now projecting YES to be loss-making at RM247m-RM272m operating losses from breakeven previously for FY16-FY17.

We also upgrade NDPS to 10.0 sen from 1.0 sen previously. As such, we have cut FY16-FY17 earnings by 1%-2%. However, our estimates assume no IPP contributions.

Rating

Upgrade to OUTPERFORM from MARKET PERFORM

Valuation

At 10% holdings company discount to its RNAV of RM1.92/share, our new price target is RM1.73/share from RM1.68/share previously.

With >90% earnings denominated in GBP/SGD/SGD currencies coupled with recent price weakness, YTLPOWR appears to be an attractive stock to look at. We upgrade our recommendation to OUTPEFORM from MARKET PERFORM previously.

Risks to Our Call

Lower dividend payouts, widening YES’ losses and a sharp recovery of MYR.

Source: Kenanga Research - 21 Aug 2015