YTL Power International 2QFY13: The Missing Dividend (MIB)
YTL Power International
Buy (unchanged)
Share price: MYR1.54
Target price: MYR1.80 (unchanged)
2QFY13: The Missing Dividend
Upping the ante. 2QFY13 results were below our expectations. More importantly, the company failed to declare a quarterly dividend (the previous instance was back in 1QFY08). Parent YTL Corp (Not Rated) meanwhile raises DPS by 50% QoQ (from 1sen in 1QFY13 to 1.5sen in 2QFY13). Having outperformed its parent substantially YTD, the near term risk-reward for YTL Power now appears less compelling. We maintain our earnings estimates for now, expecting catch up in 2HFY13 from Power Seraya.
Realign interest with major shareholder? 2QFY13 core net profit of MYR250m (+16% QoQ, -26% YoY) brings 1HFY13 net profit to MYR465m (-20% YoY), 42% of our full-year forecast. The investment thesis centres on YTLP potentially being privatised via a share swap. The recent outperformance of YTLP share price (relative to YTL Corp) meant a share swap is now less attractive for the Yeoh family. Yesterday’s respective dividend announcements could potentially cause the prices of both stocks to once again diverge.
Lower power contributions. Malaysia’s (power plants) 2QFY13 pre-tax profit declined 53% YoY due to a high base (as 2QFY12 included a one time billing for recovery of excess generation). Singapore’s (Power Seraya) pre-tax profit contracted 39% YoY, which management attributed to lower fuel oil trading profits. UK’s (Wessex Water) pre-tax profit was up 25% YoY, as a price hike took effect in October 2012. Wimax’s losses meanwhile widened QoQ to MYR77m (from MYR61m in 1QFY12), but remains comfortably below FY12 levels due to increased billings from the 1BestariNet project.
Target price unchanged at MYR1.80. Our target price of MYR1.80 is based on a 10% discount to our RNAV estimate of MYR2.00, in turn derived from a sum-of-parts valuation with each operating entity valued using DCF. Our target price implies a PER of 11.7x and P/B of 1.3x in FY13. Valuations are attractive, but YTLP risks becoming a value trap if no privatisation offer is made.
Source: Maybank Kim Eng Research
Publish date: 22/02/13
YTL Power: Gearing up for acquisition (DBSV)
YTL Power
HOLD RM1.54
KLCI : 1,614.05
Price Target : 12-Month RM 1.70
Gearing up for acquisition
2QFY13 result was within our expectations
Smaller power contribution due to weaker PowerSeraya earnings
No dividend for 2QFY13; conserving cash for acquisitions
Maintain HOLD with RM1.70 TP
Highlights
Weaker power contribution. YTLP’s 2QFY13 revenue was stable but pretax profit fell 14% y-o-y due to lower power contribution. PBT contribution from PowerSeraya (54% of PBT) fell 24% due to lower fuel oil prices and sale volume recorded at its fuel oil trading division.
Malaysian power division PBT fell 48% due to one-off fuel recovery in 2Q12 as a result of gas curtailment. The smaller power contribution was partly offset by higher Wessex earnings (+2%) following higher water tariffs in Oct12 and smaller losses at YES as its subscriber base grew.
No dividend for 2QFY13. 1H13 earnings account for 45% and 41% of our and market estimates; that is within expectations as YTLP normally records higher earnings in the 2H. However, YTLP did not declare its usual quarterly dividend, possibly because it may want to conserve cash for acquisitions.
Our View
More challenging outlook. Earnings from PowerSeraya and Wessex Water will remain resilient in FY13, but the subsequent years will be challenging as rising capacity in Singapore’s
electricity market 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.
We expect YTLP to continue to bid for regulated assets overseas given its RM10b cash hoard at end 2QFY13, to compensate for potentially lower earnings from PowerSeraya and Wessex Water.
Recommendation
Maintain HOLD. Our recommendation is premised on reasonable valuations and longer term upside from new acquisitions. Our DCF-derived TP is intact at RM1.70.
Source: DBS Vickers Research
Publish date: 22/02/13