YTL Power - Progress on new projects

Maybank Research, February 21, 2020

Tan Chi Wei, Analyst

Target Price RM0.80

Risk-reward turns favourable; U/G to BUY
1HQFY20 core net profit was below our/market expectations, due to continued weakness at PowerSeraya and Mobile. Nevertheless, progress was made pertaining to the new projects, with YTLP having finally obtained a government guarantee for Tj Jati A (a precursor to financial close). Along with the impending commencement of Attarat Power (a significant FY21 earnings growth driver), we think risk-reward has turned favourable. Upgrade to BUY with a higher 80sen SOP-based TP (+23%).

Results below expectations
Excluding forex and fair-value adjustments, YTLP’s 2QFY20 core net profit of MYR67m (-11% YoY, +9% QoQ) brings 1HFY20 core net profit to MYR128m (-36% YoY), 41%/35% of our/consensus full-year forecasts. The miss relative to our forecasts was again attributable to larger-thanexpected losses at both PowerSeraya and the mobile division.

1Bestarinet’s absence bites
During the quarter, PowerSeraya’s pre-tax loss narrowed QoQ, but was still substantial. Mobile pre-tax losses widened QoQ on the full quarter impact of the 1BestariNet contract loss. Wessex and the Malaysia IPP were stable, while associate income grew sequentially. Separately, on new projects, there was a breakthrough at Tj Jati A, with YTLP finally obtaining a government guarantee. We believe financial close would soon be achieved. Meanwhile, construction of Attarat Power is almost completed, with the plant on track to begin operations in mid-2020.

Upgrade to BUY
We have revised our FY20/21/22 net profit forecasts by -9%/+69%/+71% as we incorporate: 1) latest segmental run-rates for FY20E and, 2) the associate income from Attarat Power (c.MYR220m annually) beginning FY21E. Our TP is raised to 80sen (from 65sen), and is based on a sum-ofparts, with the operating entities each valued by DCF. YTLP also offers
an attractive yield of c.7%.

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