Price Target: 12-Month RM1.70
•Dividend cut to conserve cash for acquisition
•New acquisitions are crucial to cushion against earnings drop after expiry of Malaysian PPAs in 2015
•Maintain HOLD with TP of RM1.70
More challenging outlook. 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. The lingering European crisis could also limit returns from Wessex upon the expiry of the current regulatory regime in 2015.
Conserving cash for acquisition. YTLP’s FY13 yield is limited to 0.6% and this might disappoint long-term investors. However, 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 Jun13, to compensate for potentially lower earnings from PowerSeraya and Wessex Water, as well as expiry of Malaysia PPAs in 2015.
Lacking in catalyst; maintain HOLD. YTLP’s share price improved 10% over the last month, supported by its share buyback plan and decent valuations. Talk on potential privatisation by YTL Corp is still ongoing, but timing is uncertain. YTL Corp is likely to fund the privatisation by issuing YTL Corp’s shares. Maintain HOLD with DCF-derived TP of RM1.70. The stock lacks near-term catalysts. Our HOLD rating is premised on reasonable valuations and stable earnings.