INVESTMENT HIGHLIGHTS

• 4QFY18 slightly ahead, declares 5sen final dividend

• USEP improving, possible consolidation in Singapore power

• Jati and Jordan shale plant upcoming catalysts

• Maintain BUY at unchanged TP of RM1.55, decent 4% yields

Dividends maintained. YTL Power (YTLP) reported core earnings of RM223m for its 4QFY18, bringing FY18F core earnings to RM764m. This is slightly ahead of expectations accounting for 109% of our FY18F and 111% of consensus’. However this is largely due to slightly lower than expected effective tax rates (actual: 24% vs. our 27%). Pretax was inline accounting for 101% of our FY18F. A final dividend of 5sen/share was declared, maintained at FY17 level, representing a 50% payout, inline with expectations.

Singapore power. Seraya revenues were up 6%yoy but earnings were hit by lower margins for its oil tank leasing and electricity sale while finance cost was higher. On the bright side, average USEP wholesale electricity rates (SGD83/MWh a year ago vs. SGD109/MWh in 2Q18) (See Exhibit 1) is gradually improving. Meanwhile, Hyflux has filed court protection for 5 subsidiaries, including its Tuaspring plant (the last large capacity to come on-stream in Singapore). Hyflux has been reported to be looking to divest a 70% stake in the plant but this has been taking longer than expected. Possible consolidation in Singapore power generation should help to ease the oversupply condition in the sector. Hyflux Tuaspring accounts for 3% of Singapore generation capacity.

Tg Jati clears hurdle. YTL Power’s 80%-owned Tg Jati power plant project in Indonesia is understood to have crossed a major hurdle having finalised PPA terms with the local regulators – amended and restated in March 2018. Despite the new PPA entailing lower rates, IRR is still estimated at an attractive 11%-13% vs. earlier mid-teens expectation. To recap, Tg Jati is a 1320MW coal power plant scheduled for commercial operation in CY21F with a 30-year PPA up till 2051. The project is estimated to cost USD2.7b (RM11b) including land relocation cost and capitalised interest. With finalisation of PPA terms, the project is on track to reach financial close soon. The group is looking at several options, which may include Sukuk financing or USD financing (a bit more expensive than the former). We estimate finance rates to range between 5% to 7%. Construction of the plant is targeted to commence next year.

Broadband unit. Losses remained at RM26m given intense price competition. Bestarinet expected to progress till mid-CY19, until which a new tender is expected to be out. While the Ministry has been reported to be “unhappy” with the current performance, YTL will not be excluded from the bidding. Given that Bestarinet is technically integrated into the group’s broadband business, we would not rule out possibilities of YTLP pursuing a partner to help it grow the business.

Source: MIDF Research - 30 Aug 2018