Thursday, August 25, 2011

YTL Power Earnings Evaluation: 4Q11 Result in Line

26 August 2011
Price Target: RM2.33
Share price: RM1.89


Results
Inline – FY11 results were in line with our expectations and consensus. Reported 4QFY11 core earnings of RM379m, took FY11 to RM1,216m, 96.1% of HLIB’s FY11 estimates and 102.1% of consensus.

Deviations
None.

Dividends
Proposed interim tax exempt dividend of 1.875 sen (Full year net dividend of 9.375 sen vs 13.125 sen last year). Below HLIB FY11 estimate of 11.25 sen.

Highlights
# Strong revenue contribution from Power Seraya in Singapore with +8.2% yoy growth. Consequently, the units PBT contribution also increased by +25.4% yoy.

# Wessex water continued to be impacted by appreciation of RM, translating into lower yoy revenue and profit.

# YTL Communication (YTLC) continued to report losses due to initial start-up period (Low revenue and high expenses). It expects subscriber base to increase to 400k by year end from the current level of 300k. It is currently waiting for Sabah and Sarawak locals government approval for operating in both states. It is also collaborating with Intel for WiMAX-ready products development.

# The sales of 15% stake in Java Power for RM680m was completed in 15 August 2011. YTLP will recognize RM210m gain on disposal in 1QFY6/12. However, the contribution from Java Power will be reduced to RM150m in FY6/12 and RM130m in FY6/13 onwards, from original RM225m pa.

Risks
Downside risks
- Appreciation of RM against other foreign currencies.
- YTLC facing strong competition from the existing telcos.

Forecasts
- Reduced FY6/12-13 earnings by 6-7% after accounting for lower contribution from Java Power. We have introduced FY6/14 earnings of RM1.4bn (+5.9% yoy).
- Cut net dividend forecast to 7.5 sen (previously 11.25 sen)

Rating - BUY
Positives
- Strong and stable cash flow.
- Large cash piles (RM7.2bn) allowing YTLP to look for more value accretive acquisitions
- Relatively unaffected by the surging energy prices.

Negatives
- The increasing competitive landmarks for YTLC especially with the implementation of LTE networks by 2012.

Valuation
Target price reduced to RM2.33 based on Sum-of-Parts, after earnings reduction, and imputing 10% holding company discount to account for higher risk premium.



Source: HLIB Research

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