Upping the ante. 2QFY13 results were below our expectations. More importantly, the company failed to declare a quarterly dividend (the previous instance was back in 1QFY08). Parent YTL Corp (Not Rated) meanwhile raises DPS by 50% QoQ (from 1sen in 1QFY13 to 1.5sen in 2QFY13). Having outperformed its parent substantially YTD, the near term risk-reward for YTL Power now appears less compelling. We maintain our earnings estimates for now, expecting catch up in 2HFY13 from Power Seraya.

Realign interest with major shareholder? 2QFY13 core net profit of MYR250m (+16% QoQ, -26% YoY) brings 1HFY13 net profit to MYR465m (-20% YoY), 42% of our full-year forecast. The investment thesis centres on YTLP potentially being privatised via a share swap. The recent outperformance of YTLP share price (relative to YTL Corp) meant a share swap is now less attractive for the Yeoh family. Yesterday’s respective dividend announcements could potentially cause the prices of both stocks to once again diverge.

Lower power contributions. Malaysia’s (power plants) 2QFY13 pretax profit declined 53% YoY due to a high base (as 2QFY12 included a one time billing for recovery of excess generation). Singapore’s (Power Seraya) pre-tax profit contracted 39% YoY, which management attributed to lower fuel oil trading profits. UK’s (Wessex Water) pre-tax profit was up 25% YoY, as a price hike took effect in October 2012. Wimax’s losses meanwhile widened QoQ to MYR77m (from MYR61m in 1QFY12), but remains comfortably below FY12 levels due to increased billings from the 1BestariNet project.

Target price unchanged at MYR1.80. Our target price of MYR1.80 is based on a 10% discount to our RNAV estimate of MYR2.00, in turn derived from a sum-of-parts valuation with each operating entity valued using DCF. Our target price implies a PER of 11.7x and P/B of 1.3x in FY13. Valuations are attractive, but YTLP risks becoming a value trap if no privatisation offer is made.

Source: Maybank Research - 22 Feb 2013