KLCI : 1,720.37
Price Target : 12-Month RM 1.70
FY13 profit in line with our estimate but 10% below market expectation
No dividend for 4QFY13; conserving cash for acquisitions
New acquisitions are crucial to cushion against earnings drop after expiry of Malaysian PPAs in 2015
Maintain HOLD rating and RM1.70 TP
Higher water earnings cushioned weaker power contribution. Water division PBT grew 12.5% y-o-y as a result of higher tariff rate since Oct12, and partially offset weaker power contribution from Malaysia (-38%) due to provision for receivables. PBT from PowerSeraya was stable y-o-y, while YES WIMAX operation booked a smaller loss of RM269m (-13% y-o-y) following a larger subscriber base and contribution from Bistarinet. PowerSeraya is the largest contributor (45%) to the group, followed by Wessex (42%) and Malaysia power plants (11%).
Dividend disappoint. YTLP did not declare a dividend in 4Q, and FY13 DPS is limited to 0.94 sen declared in 1Q13. The much lower FY13 dividend yield of 0.6% might disappoint long term investors, but this is a strategic move to conserve cash for future acquisitions. We expect YTLP to continue to bid for regulated assets overseas given its RM10bn cash hoard at end June, to compensate for potentially lower earnings from PowerSeraya and Wessex Water, as well as expiry of Malaysia PPAs in 2015.
Beneficiary of weaker Ringgit. This is because c.90% of its earnings is derived from outside Malaysia. We estimate a 1% depreciation of the MYR against the SGD and GBP would lift FY14F net profit by 0.4% and 0.5%, respectively. However, the operating outlook for YTLP will be more challenging over the next few years due to rising capacity in Singapore’s electricity market that will eventually pressure margins and sales volumes, and the lingering European crisis could limit returns from Wessex upon the expiry of the current regulatory regime.
Maintain HOLD. The stock lacks near term catalysts. Our HOLD rating is premised on reasonable valuations and stable earnings. Our DCF-derived TP is intact at RM1.70.
Publish date: 23/08/13