Although it reported the lowest quarterly earnings in 12 years, YTLPOWR’s 1Q16 numbers seen improvement on better PowerSeraya’s earnings while losses at YES narrowed supported by higher subscriber base as the 4G LTE services are now nationwide. The dispute between Paka Power Plant and TENAGA is pending court judgement in the middle of next month. Maintain MARKET PERFORM call at price target of RM1.54/share.

1Q17 below. At 18%/19% of house/street’s FY17 estimates, 1Q17 net profit of RM146.5m, which is a new low since 4Q04, came below expectations. The main variance between our estimates and the actual results is due to our assumption that the IPP Para Power Plant would be operational with PBT of RM64.4m in FY17 but the dispute of PPA Extension was not resolved, which caused the plant posting a loss before tax of RM26.0m in 1Q17. No dividend was declared in 1Q17 as expected as it only had paid out only final dividend in the 4Q since FY14.

A better sequential quarter operationally. Despite revenue rising 8%, 1Q17 core profit plunged 52% to RM146.5m from RM307.1m due to higher associate income at RM344.8m posted in 4Q16 due mainly to the increase in deferred tax credit on revaluation of PT Jawa Power Plant assets for tax purposes. However, operationally, 1Q17 was a better quarter with PowerSeraya posting higher PBT of RM35.0m from RM7.7m on higher vesting contract value while the expensive peaking plant was not running; thus, reduced operating cost. Meanwhile, losses at YES narrowed 40% to RM65.3m as the new nationwide 4G LTE services in end-Jun boosted subscriber base by 100,000 in 1Q17. However, Wessex Water earnings fell due to the strengthening of MYR against GBP.

But still weak from last year. However, 1Q17 core earnings declined 22% from RM186.7m in 1Q16 as revenue contracted 27% over the same period. This was mainly due to the local IPP which was mentioned above where the PPA expired in Sep 2015; thus, 1Q16 was the last quarter to record earnings before it expired in 2Q16. The local IPP posted pre-tax loss of RM26.0m as opposed to RM61.1m PBT in 1Q16. Meanwhile, earnings for PowerSeraya and Wessex Water were flattish while YES posted lower pre-tax loss by 36% on higher subscriber base on the 4G LTE services as mentioned above.

Challenging outlook. Outlook for PowerSeraya remains challenging as the electricity market in Singapore remains competitive with new capacity coming on-stream. Meanwhile, the court judgment for the dispute between Paka Power Plant and TENAGA (OP; TP: RM17.50)

is set for mid-Dec. 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.

Keep MARKET PERFORM. We reduced FY17 estimates by 5% as we only expect sx month contributions instead of full year for Paka Power Plant after the court judgement but keep FY18 estimates. We maintain our MARKET PERFORM rating as the stock still offers above average yield of 6-7%. Our price target retained at RM1.54/share which is based on 10% discount to its FD RNAV of RM1.71/share. Upside risks to our call include a sudden recovery by PowerSeray

Source: Kenanga Research - 18 Nov 2016