YTL Power - No Near-Term Sparks

We met up with YTL Power’s management recently for an update on the company’s outlook following the release of its 1HFY13 results. The highlights included its bid for Project 3B, which comprises a new coalfired 2x1,000MW power plant in Malaysia, and potential headwinds facing its Power Seraya operations. We maintain our NEUTRAL call,with our FV tweaked a tick lower to RM1.50.

To bid for Project 3B. YTL Power is looking to participate in the upcoming tender for Project 3B called for by the Energy Commission (EC). We believe the project, comprising a greenfield coal-fired power plant with 2x1,000MW capacity, presents an opportunity for the group to potentially replenish its IPP earnings base in the country. That said, we believe it might have to submit a competitive bid to bag the project given the intense interest on the job.

Power Seraya faces tightening margins. Management conceded that its Power Seraya operation would likely see more pricing competition in the medium term. As Singapore’s local authorities is targeting an additional 3,000MW in generation capacity by 2017, we believe that tariff pricing may remain stagnant and even face some downside risks in the near term.

WiMAX to ride on 1Bestarinet project. Its WiMAX business currently has 400k subscribers. Moving forward, management is likely to focus on implementing its RM4bn 1Bestarinet project awarded by the Government in 2011 to ensure the provision of WiMAX services to 10,000 schools in Malaysia. We expect the unit, which registered pre-tax losses of RM137.7m in 1HFY13, to break even at the EBITDA level by end-2015.

Revising earnings forecasts. Following an internal coverage reallocation, we are revamping our earnings model, which leaves our FY13 net profit forecast unchanged at RM1.02bn while our FY14 and FY15 estimates are tweaked up by 0.3% and 4.0% to RM1.12bn and RM1.21bn respectively. That said, we are relatively cautious on the potential headwinds its Singapore operations may face in the near term, as well continued losses at its WiMAX division. Hence, we maintain our NEUTRAL call, with our FV at RM1.50.

Source: RHB