Friday 22 February 2013

YTL Power - Below Expectations


YTL Power’s (YTLP) 1HFY13 results were below our and consensus expectations. Its net  profit  of  RM508.9m  accounted  for  43.9%  and  41.9%  of  our  and  consensus  full-year estimates respectively. We attribute this to weaker-than-expected showing from its  power  division  due  to  stiffening  competition  faced  by  its  Singapore  operation. Maintain NEUTRAL with our FV tweaked slightly lower to RM1.52 from RM1.60.

Numbers lose some power. The group’s 1HFY13 revenue of RM8.28bn rose 7.1% y-o-y, driven  by  its  multi-utilities  business,  which  expanded  5.9%,  as  well  as  its  Wessex operations, which posted 6.3% growth over the same period. Contribution from its WiMAX division  surged  >600%  y-o-y  to  RM219.3m,  which  we  believe  was  mainly  due  to  lumpy income following its implementation of the 1Bestarinet project. The group’s 1HFY13 EBIT, however,  slipped  12.1%  y-o-y  to  RM885.8m  despite  WiMaX’s  narrowing  losses  due  to lower profit margins. We believe this have been due to the weaker-than-expected showing from its power operations in Singapore as heightened competition in the republic may have led  to  margin  erosion.  All  in,  the  drop  in  1HFY13  net  profit  was  a  narrower  9.1%  y-o-y, mitigated by a 49.6% jump in contribution from its associates over the period under review, as well as a lower effective tax rate.

Revising  forecasts.  With  the  numbers  coming  in  slightly  weaker  than  our  earlier projections,  we  are  revisiting  our  model  and  cutting  our  forecasts  for  contributions  from YTLP’s power  segment  by  lowering  our  sales  and  margins  assumptions.  As  a  result,  our FY13-FY15  revenue  projections  are  trimmed  by  1.5%-2.0%  while  our  corresponding  net profit  estimates  are  now  4.8%-10.2%  lower.  Our  FY13  net  profit  forecast  now  stands  at RM1.02bn, which we believe is more realistic.

NEUTRAL.  Following  our earnings  revision, our  FV  on  YTLP  has been  pared down  from RM1.60  to  RM1.52,  based  on  an  unchanged  20%  discount  to  our  SOP  valuation  of RM1.90. This is to reflect the continued uncertainty over the potential operation turnaround in the group’s WiMAX business. Maintain NEUTRAL.
Source: OSK

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