Results

In line - Reported 2QFY13 core earnings of RM224.6m, leading to RM417.1m for 1HFY13, which is 42.1% of HLIB’s FY13 forecast. We expect stronger earnings for 2HFY13, banking on lower losses from Yes and tariff hikes from Wessex Water. Dividends

None. This is the first time YTLP withhold its dividend payout in the quarter after gradually cutting the dividend payout since 4QFY09.

Highlights

Malaysia power generation reported lower revenue and earnings due to 2Q12 excess generation and provision for maintenance cost for 2Q13.

Continued margin compression in Singapore Seraya due to high fuel cost and lower contribution from fuel trading division. The continued increase in power generation capacity in Singapore would add pressure to both margin and sales volume in FY13.

Wessex Water received tariff hikes approval from UK government in October 2012, contributing to higher revenue and earnings in the quarter to compensate its higher operational cost and capex. The management is confident of achieving its 2010-15 regulatory outperformance target.

Despite higher revenue reported by YTL Communication (YTLC) on the back of increased subscriber base, the division recorded higher losses attributed to high operational cost. We expect breakeven only in FY15.

Risks

Downside risks –

• Appreciation of RM against other foreign currencies.
• YTLC facing strong competition from the existing telcos.

Forecasts

Unchanged

Rating

HOLD

• Positives –
  • Strong and stable cash flow.
  • Large cash piles (RM8.1bn) allowing YTLP to look for more value accretive acquisitions
• Negatives –
  • The increasing competitive environment for YTLC especially with the implementation of LTE networks by the major telcos.
  • High operating cost environment in United Kingdom (inflationary pressure) and Singapore (high fuel cost).
  • Increasing power generation capacity in Singapore adds pricing pressures into the market.

Valuation

• Maintained Hold with unchanged target price of RM1.66 based on 10% discount to Sum-of-Parts, to account for lower net dividend payout.

Source: Hong Leong Investment Bank Research - 22 Feb 2013