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Friday, February 24, 2017

YTL Power International - Encouraging Markers from Seraya and YES

Author: sectoranalyst   |   Publish date: Fri, 24 Feb 2017, 04:48 PM 


Review

  • YTL Power International Bhd’s (YTLP) 1HFY17 core profit of RM305mn (+12% YoY) was below our expectations and consensus, accounting for 41%/42% of full-year forecasts respectively. The shortfall was mainly due to higher-than-expected taxes.
  • 1HFY17 core pretax profit of RM421mn (-4% YoY) was within our expectations. Recall that in 2QFY16, YTL Power recognized chunky oneoffs at its Malaysian power operations, including:- 1) write-back of impairment for receivables (RM153mn), and 2) arbitration award of RM38mn.
  • Overall, it was an encouraging and improved set of 1HFY17 results. This was mainly due to:- 1) losses at the mobile broadband (MBB) segment halved to RM81mn (1HFY17: RM160mn loss), and 2) jump in pretax profits (+17% YTD) from Power Seraya (PS). We believe MBB’s improvement was mainly driven by 1Bestarinet and traction for its new YES 4G services (launch: 2HCY16). Whereas PS was aided by lower opex and interest expense.
  • This more than offset the following dampeners:- 1) weaker GBP vs ringgit which resulted in lower contribution from Wessex Water (-5% YTD), 2) expiry of Paka’s PPA in 2QFY16, and 3) lower associate contribution from Jawa Power.

Impact

  • In-line with 1HFY17 results, we incorporate higher taxes, increased losses at Paka, and reduce contribution from Jawa Power. In addition, we also account for lower net debt at PS. As a result, our FY17-19 forecasts are reduced by 6%-10%. Correspondingly, our SOP target price is raised to RM1.90 (previous: RM1.84).

Valuation

  • Maintain Buy on YTL Power (TPRM1.90), which is an attractive value play with stable cash flows, attractive yield, and earnings catalysts in the pipeline. The stock is currently trading at 1SD below historical forward P/B. This signifies a steep discount on its quality assets, with reference to its crown jewel Wessex Water.
  • Meanwhile, earnings will receive a boost upon the startup of Tg Jati coal plant in Indonesia in 2020. In addition, the impending financial closure (target: 1QCY17) for Attarat shale plant in Jordan will also uplift valuations and earnings.
Source: TA Research - 24 Feb 2017

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