9MFY15 results met our forecast but missed consensus estimates. We tweak our FY15-17 earnings forecasts upwards by 1%, 3% and 6% respectively but kept our NEUTRAL call and MYR1.69 TP (2% upside). YTL Power’s fundamentals do not excite investors as its power plants in Malaysia are about to be retired while PowerSeraya and its WiMAX unit continue to report weak numbers.

A mixed bag. YTL Power International’s (YTL Power) 9MFY15 (Jun) core net profit of MYR668.6m (excluding forex and disposal gains) came in within our forecast (77% of our full-year forecast) but missed consensus estimates (only 65% of full-year consensus forecast). 9MFY15 core net profit declined 20.6% YoY on the back of weaker contribution from PowerSeraya Ltd in Singapore (due to increased competition on expanded capacity in the power generation sector in Singapore) and widened losses from its WiMAX division. There was a slight improvement in performance from its power generation business in Malaysia and Wessex Water in the UK.

Still no new local power plant project. A new power plant project in Malaysia has thus far remained elusive to YTL Power. There is a possibility that one of its power plants (to be retired in Sep 2015) may be renewed for 1-2 years due to delays in the completion of a competitor’s 1,000 megawatts (MW) coal-fired power plant. However, even if this happens, the impact on earnings is likely to be one-off.

Forecasts. We nudge up FY15-17 earnings forecasts by 1%, 3% and 6% respectively.

Risks: These are: i) continued losses from its WiMAX division, and ii) earnings volatility at PowerSeraya.

Maintain NEUTRAL. YTL Power’s fundamentals do not excite investors as it has yet to secure any new power plant project in Malaysia, while its existing ones are about to be retired. Also, the market may be slow in warming up to its new overseas investments, particularly in greenfield projects given the high execution risk. We keep our SOP-based TP at MYR1.69 (see Figure 2).

SWOT Analysis

Company Profil

YTL Power is an independent power producer (IPP) with a presence in Malaysia and Singapore. It also provides water and sewerage services in the UK. The company has also ventured into the provision of WiMAX internet services in Malaysia.

Recommendation Chart

Source: RHB Research - 22 May 2015