INVESTMENT HIGHLIGHTS

• FY19 within expectation

• Dividends surprised positively, attractive 7.4% yield

• Maiden contribution from Jordan power plant next year

• Upgrade to BUY following sharp price correction; TP unchanged at RM0.88/share

FY19 within expectations. YTL Power (YTLP) reported core net profit of RM127m for its 4Q19, bringing FY19 core earnings to RM544m. This is within both our and consensus estimates accounting for 97% and 99% of full year projections respectively. An interim dividend of 5sen/share was declared.

Dividends surprised. Despite a contraction in earnings (albeit largely expected), dividends were maintained at 5sen/share for FY19. This implies a generous 70% payout and an attractive 7.4% yield at current depressed share price levels. Bulk of group cash is generated by Wessex Water which remains resilient (the year-on-year contraction at Wessex Water is due to last year’s one-off pension credit which inflated earnings).

Power division. Power Seraya remained in the red in 4Q19 but pretax losses narrowed to RM22m (RM87m pretax loss in 3Q19) driven by higher volumes and revenue (+8%qoq). Domestic power saw a 27%yoy earnings contraction due to an impairment taken, estimated at ~RM4.4m. Excluding this, earnings would have been slightly stronger.

Bestarinet project. YTLP’s Bestarinet contract expired end-4Q19. We estimate Bestarinet revenue contribution at ~RM280m-RM300m annually. The absence of this is estimated to impact mobile broadband revenues by around 30%. Despite the brouhaha surrounding continuation of the project, we understand a new tender will be called and YTL intends to participate. In the meantime, incumbent telcos (TM, Celcom, Maxis) have been asked to plug the gap in providing telco-related services for the project for a period of 6-months. Positively, the mobile broadband division turned in a pretax profit of RM10m in 4Q19 on the back of a 23%yoy improvement in revenue.

Attarat Jordan plant. To recap, YTL Power also has a 45% stake in Attarat Power Company (APCO), which will construct and operate Jordan’s first oil shale power plant, located in Attarat Um Ghundran, expected to be in operation in mid-CY20. The USD2.1b 470MW plant entails a 30-year PPA with the National Electric Power Company. Other partners are China-based Guangdong Yudean Group (45%) and Eesti Energia AS (10%). Construction is undertaken by the Chinese party and is currently well underway. The project comprises of the power plant itself, a fuel and mixing yard, an oil shale mine, water wells and mine infrastructure. Given that this is the first such plant in Jordan, the concession entails a very attractive IRR of 19%.

Source: MIDF Research - 30 Aug 2019