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YTL Power International Bhd
(May 22, RM1.65)

Maintain hold with a target price of RM1.60: YTL Power International reported third quarter ended March (3QFY15) earnings of RM223 million (a decrease of 9% quarter-on-quarter, and 13% year-on-year), taking nine-month (9MFY15) profit to RM712 million, which is in line at 78% of our FY15 full-year forecast.

Pre-tax profit came in at RM339 million, of which 69% came from its water and sewerage business in the United Kingdom.

The multi-utilities business in Singapore remained the second largest contributor, but continued to face competitive pressure in sales volumes and margins. Its mobile broadband network division registered a RM57 million pre-tax loss in 3QFY15 in view of the challenging telecommunications industry.

YTL PowerSeraya Pte Ltd is facing increasing competition as Singapore’s rising electricity generation capacity will pressure margins and sales volumes.

Meanwhile, the expiry of its Malaysia power purchase agreements (PPAs) in September 2015 could also result in muted earnings growth ahead.

We expect YTL Power to continue to bid for regulated assets overseas given its large cash hoard of RM9.7 billion, to compensate for potentially lower earnings from PowerSeraya and expiry of Malaysia PPAs in September.

Its mobile broadband network business is unlikely to turn around soon given the competitive industry landscape and long gestation period. It has been loss-making since inception in 2011.

We maintain a “hold” call with a sum-of-parts-derived target price of RM1.60 per share, on reasonable valuation.

The stock lacks near-term rerating catalysts, and earnings could shrink after the expiry of the Malaysia PPAs. — Alliance DBS Research Sdn Bhd, May 22

YTL-Power_FD_25may2015

This article first appeared in The Edge Financial Daily, on May 25, 2015.

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