3QFY22 core profit of merely RM5.6m fell short of forecast owing to weaker-than-expected Wessex Water and YES earnings. However, PowerSeraya performed strongly which is likely to be sustained. With several new ventures and big cash pile from ElectraNet, we expect more development from the stock. Keep OP on the stock with a higher TP of RM1.11. It also offers above average dividend yield of >8%.

3QFY22 missed forecast… At 36%/38% of house/street’s FY22 estimate, 9MFY22 core profit of RM83.6m came way below expectations. This was due to the weak set of 3QFY21 results with core profit of only RM5.6m, owing to weaker-than-expected Wessex Water and YES earnings. On the other hand, it declared an interim NDPS of 2.0 sen (ex-date: 10 Jun; payment date: 29 Jun) in 3QFY22 which is the same as the interim NDPS paid in 3QFY21.

…dragged by Wessex Water and YES earnings. The headline net profit of RM1.01b was largely driven by disposal gain, namely associate EletraNet. Ex-EI, core profit was only RM5.6m which was slightly better than the dismal RM1.7m reported in the preceding quarter which was due to the rising fuel cost hit which PowerSeraya earnings. This time, the culprit was Wessex Water (-39% on seasonality impact on water supply and waste treatment revenues) and YES (losses widened to RM85.7m from RM16.4m on lower project revenues). However, this was mitigated by stronger-than-expected PowerSeraya (profit jumped to RM135.2m from RM14.2m on higher pool gains and retail margin while the previous quarter was hit by rising fuel costs).

Weak PowerSeraya earnings in 2QFY22 also hit YoY earnings. On YoY comparison, 3QFY22 core profit plunged from RM127.1m in 2QFY21 which was also due to the similar reasons mentioned above. YTD, 9MFY22 core profit plummeted 76% to RM83.6m from RM345.8m in 9MFY21 although revenue soared 72% which was due to higher PowerSeraya revenue on higher pool and fuel oil prices as well as higher YES revenue on higher subscriber base. The fall in earnings were largely due to: (i) the rising fuel cost which hit PowerSeraya earnings badly in 2QFY22, (ii) lower Wessex Water earnings as mentioned above, and (iii) the expiry of Paka Power Plant in Jun 2021 as the plant still incurs ongoing overheads and depreciation charges with no revenue.

Many new ventures on the plate. YTLPOWR has been busy with new ventures of late, such as building YTL Green Data Center Park and it also intend to develop LSS both in Johor, in addition to winning a digital banking license with Sea Ltd’s Shopee. With c.RM3b cash proceed from the disposal of ElectraNet, we believe YTLPOWR will continue to look out for new investment and in the past, the YTL Group have always expanded during economy downturn. For existing business, PowerSeraya earnings should stabilise after the 4QFY21 woe but YES may continue to face challenges.

A good value buy; OP maintained. While we cut FY22-FY23 forecast by 23%-12% on lower Wessex Water and YES earnings assumptions, we remain optimistic on YTLPOWR’s prospects on the back of sustainable turnaround in PowerSeraya and new exciting ventures. In addition, we also raised our TP to RM1.11 from RM0.87 based on 20% discount to its SoP valuation as we updated the disposal cash from ElectraNet. As such, we maintain our OP rating which is also supported by above average yield of 8%. Risks to our upgraded call are: (i) losses at YES worsening, and (ii) PowerSeraya failing to stay profitable.

Source: Kenanga Research - 27 May 2022