YTL  Power  International’s  9MFY14 core  earnings  of MYR852.0m  came within expectations as weakness in its PowerSeraya unit was offset by improved showing from Wessex Water operations.  Maintain NEUTRAL, with  our  FV  tweaked  to  MYR1.71  (from  MYR1.86)  as  we  update  our WACC assumptions amid the current rising interest rate environment.

• Within  expectations.  YTL Power  International’s  (YTL Power)  9MFY14revenue  closed  at  MYR11.1bn  (-7.4%  y-o-y),  as  growth  in  most  of  its divisions was offset by its PowerSeraya unit, which saw a 16.5% decline in topline due to continued headwinds amid stiffening price competition in  Singapore’s  power  industry.  Core  earnings,  however,  reversed  the negative trend to  surge  17.2% y-o-y to MYR850.2m,  owing to improved contributions from its Wessex Water operations in the UK (+16.7% y-o-y) as  well  as  narrower  losses  from  its  WiMAX  division  (-38.7%  y-o-y). Earnings  were  largely  in  line  with  consensus  and  our  expectations,  at 77.7%  and  78.2%  of  full-year  estimates  respectively.  On  a  quarterly basis,  3QFY14 revenue was at MYR3.3bn (-12.5% q-o-q;  -9.6% y-o-y) while core net profit closed at MYR267.9m (-13.2% q-o-q; +14.2% y-o-y).The company did not declare any dividend for the quarter,  following the completion of its 1-for-20 treasury share distribution in March.
• Opportunities  ahead.  While  some  selling  pressure  was  witnessed following the award of  Project 3B  to one of its  competitors, we believe that all is not lost as we expect the group to participate in the  upcoming tenders for Projects 4A and 4B, comprising 1,000megawatt (MW) each.
• Forecasts and risks. No major changes to our core assumptions at this juncture. Our FY14F/FY15F EPS forecasts are,  however,  revised up by a  marginal  2.4%/3.7%  as  we  update  our  model  for  housekeeping purpose. Key risks include  prolonged losses for its WiMAX division and further profitability headwinds for its PowerSeraya operations.
• Maintain NEUTRAL. Taking into account the current  rising  interest rate environment,  we  bump  up  our  WACC  assumptions  to  7.7-10.7%  (from 6.5-10.0%).  With that, our FV now stands at MYR1.71 (from MYR1.86). Given limited upside, we are maintaining our NEUTRAL call.

Source: RHB