YTL Power  International  (YTLP)’s  1QFY14  core earnings of MYR306.2m met our and  consensus  estimates,  with no major surprises  from  all its divisions. To our surprise, however, management has decided to cancel 250.0m shares out of its existing 477.4m treasury shares. As we believe this  would help to sustain positive  trading sentiment in the near term, we upgrade our FV to MYR1.90 (from MYR1.51). Maintain NEUTRAL.

• Within  expectations.  YTLP’s  1QFY14  revenue  was  at  MYR4.0bn  (-4.7%  y-o-y,  +2.5% q-o-q)  as most of  its  operating  divisions  chalked  in positive  y-o-y  growth,  with  its  Power  Seraya  segment  being  the  only exception due to continued headwinds amidst stiffening competition over pricing. After stripping off forex losses  of MYR70.6m incurred during the quarter, 1QFY14 core earnings  of  MYR306.2m (+42.0% y-o-y,  -7.0%  qo-q) were in line with both consensus and our expect ations at 27.1% and 26.9% of full-year estimates respectively.
• Cancellation of treasury shares. YTLP did not declare any dividend for the  quarter,  making  it  the  fourth  consecutive  period  without  a  dividend distribution.  Nonetheless,  following  its  aggressive  share  buyback programme which saw the company purchasing some 241.5m of its own shares over the last five months, management has taken the opportunity to announce the cancellation of  250.0m shares out of its existing 477.4m treasury  shares.  This  helps  to  explain  the  recent  strength  in  its  share price  but  comes  as  a  positive  surprise  to  us  as  we  had,  earlier  on,expected the company to potentially pay out a dividend in specie. 
• Maintain NEUTRAL. With  the results being  largely in line, we make no major  changes  to  our  core  assumptions  for  FY14F  and  FY15F  at  this juncture.  However,  we  are  tweaking  our  SOP  valuation,  taking  into account:  i)  its  lower  fully-diluted  share  base  of  8.2bn  following  the cancellation  of  treasury  shares,  and  ii)  the  removal  of  its  previouslypegged  20%  discount.  We  anticipate  improved  trading  sentiment  over the near term on this positive corporate exercise, on top of media reports saying that YTLP could potentially  bag the Energy Commission’s Project 3B, which comprises  a  2x1,000MW coal-fired power plant. With that,  we raise our FV for YTLP to MYR1.90. Maintain NEUTRAL.

Financial Exhibits

SWOT Analysis

•   One of the largest independent power producers (IPP) in Malaysia and Singapore

Company Profile
YTL Power (YTLP) is an independent power producer with presence in Malaysia and Singapore. The company also provides water and sewerage services in the UK. It has also ventured into providing WiMAX internet services in Malaysia.

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Source: RHB