YTL Power - Dividends Cut Yet Again
YTL Power -
Price Target : 1.60
Last Price : 1.55
Dividends Cut Yet Again
Fair Value : RM1.60 | Recom : Market Perform (Maintained)
Within expectations. YTLP’s 1QFY13 results came in within our and consensus expectations with 1Q net profit of RM253m (+2.7% yoy), accounting for 22% and 21% of our and consensus full-year estimates respectively.
Lower qoq. QoQ, revenue was relatively flat mainly due to lower contribution from the domestic power business (-5%) as a result of scheduled plant maintenance while Wessex experienced a seasonally weaker quarter (-0.6%). But there was traction in the WiMAX business (+42.1% qoq). Lower contributions from associate, PT Jawa Power and the absence of tax incentives resulted in 3Q net profit dropping 37.9% qoq.
WiMAX. The strong qoq revenue growth in the WiMAX business suggests further recognition of lumpy project income from the 1Bestarinet project. This resulted in operating losses for its WiMAX business narrowing qoq to RM61m (4Q12: -RM95m). At the current run rate, the WiMAX losses appear unlikely to exceed our FY13 assumption of RM250m and should be lower than FY12 (RM310m).
We believe YTLP will place greater focus on the 1Bestarinet project since industry wireless broadband growth remains muted due to strong competition from high-speed broadband.
Dividends. We are disappointed that YTLP declared only 0.9375 sen/share for its 1st interim single-tier dividend. We had expected 1.875 sen/share, as was declared in 1Q12. Therefore, we revised our FY13 DPS forecast lower from 4.9 sen to 3.7 sen. Yields do not look attractive at 2.4%.
Risks. The risks include: 1) unfavourable forex movements, which will adversely affect the translation of foreign earnings; 2) potential change in competitive landscape under the National Energy Plan; and 3) execution risk and poor subscriber numbers for WiMAX.
Forecasts. We have left our earnings forecasts unchanged.
Maintain Market Perform. The latest cut in dividends is another dampener to the stock. In our view, the non-renewal of YTLP’s domestic power purchase agreements meant there was little need to cut dividends, since capacity payments received from TNB remain unchanged. We reduce our fair value to RM1.60 (from RM2.00), after imputing a 20% discount to our SOP valuation of RM2.00, to reflect the lower dividend appeal and uncertainty on the turnaround time in the WiMAX business. We prefer to see a few more quarters of solid revenue growth coupled with signs of profitability in the WiMAX business before turning more bullish on the stock. We maintain our Market Perform call on the stock.
Source: RHB Research - 23 Nov 2012