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Malaysia

PP 7767/09/2010(025354)

 
Mala y sia PP 7767/09/2010(025354)  

Corporate Highlights

 

RHB Research Institute Sdn Bhd A member of the RHB Banking Group

 

Company No: 233327 -M

Resu lts Note

 

MARKET DATELINE

 

1 March 2010

YTL Power

 

Share Price

:

RM2.16

Fair Value

:

RM2.12

2Q Net Profit Up 16% YoY

Recom

:

Market Perform

   

(Maintained)

 

Table 1 : Investment Statistics (YTLPOWR; Code: 6742)

 

Bloomberg: YTLP MK

 

Net

Basic

FD

FD EPS

FD

Net

 

FYE

Turnover

Profit

EPS#

EPS#

Growth

PER

C.EPS*

P/NTA

gearing

ROE

GDY

Jun

(RMm)

(RMm)

(sen)

(sen)

(%)

(x)

(sen)

(x)

(x)

(%)

(%)

2009a

6,093.4

646.6

15.5

11.5

-12.3

19.1

-

1.9

2.8

10.4

8.0

2010f

10,771.3

1,186.3

20.3

14.9

29.7

14.7

20.4

1.9

2.6

19.0

9.1

2011f

10,997.1

1,221.2

20.9

15.2

1.6

14.5

21.5

1.9

2.5

18.6

9.1

2012f

11,270.1

1,264.8

21.6

15.7

3.4

14.0

23.0

1.8

2.4

18.2

9.1

Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC

# Excl. EI

* Consensus Based On IBES Estimates

Broadly within expectations. YTLP’s 2QFY10 results were broadly within our and consensus expectations despite 1H net profit of RM481m (+22% yoy) accounting for around 41% of our and consensus full-year estimates. 1H tends to be a seasonally slower period for Wessex and we expect earnings to pick up sequentially.

RHBRI

Vs.

Consensus

Above

In Line

Below

 

PowerSeraya helps mitigate seasonally weaker Wessex contribution. QoQ, revenue fell 2% mainly due to seasonal effects at Wessex as well as a stronger RM (+4.4% vs. GBP). Pre-tax profit, however, grew 8% qoq mainly due to stronger contribution from PowerSeraya and lower interest cost (-12% qoq), which filtered down to bottomline. We note from the segmental breakdown that the investment holding and other divisions reported a pre-tax loss of RM19m for 2Q, a reversal from the pre-tax profit of RM17m for 1Q. However, it is unclear at this stage whether this is a reflection of lumpy corporate expenses or startup costs for the WiMAX business.

Declares 2 nd interim dividend. As expected, YTL Power declared a 2 nd interim tax-exempt (TE) DPS of 3.75 sen (2Q09: 3.75 sen TE). YTD, total net DPS was 7.5 sen (1HFY09: 7.5 sen TE), which translates to a net yield of 3.5%.

Focus expected to turn to WiMAX roll out in 2HCY10. According to press reports, a soft launch of the group’s WiMAX services is scheduled in Jul, followed by an official launch in Dec. In total, YTL Communications (YTLC) plans to invest RM2.5bn over five years to roll out its network. We think the market would be watching the group’s WiMAX development and strategy. A potential concern here is that YTLC could decide to opt for an aggressive price strategy in order to win subscribers, especially given that it would be coming into the market with a largely unutilised nationwide network. Nevertheless, for now, we believe investors would take comfort that dividend levels have been maintained thus far and we note that the group’s cash pile has swelled further to RM8bn as at end-Dec from RM6.2bn as at end-Sept. Conversion of Warrants 2000/2010 (expired in Jan 2010) helped fetch around RM900m during the quarter).

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. No change to our forecasts for now. In our model, we have assumed startup costs for WiMAX would not be significant in FY10 but imputed operational losses of RM100m p.a. for FY11 and FY12.

Investment case. We have raised our SOP-derived fair value marginally to RM2.12 from RM2.10 after an update for the latest cash and debt balances as well as share base. Market Perform call, however, is unchanged.

Please read important disclosures at the end of this report.

Issued Capital (m shares) Market Cap (RMm)

 

6,853.1

14,802.8

Daily Trading Vol (m shs)

5.0

52wk Price Range (RM)

1.85-2.28

Major Shareholders:

 

(%)

YTL Corporation

51.4

EPF

11.5

FYE Jun EPS chg (%)

FY10

FY11

FY12

-

-

-

Var to Cons (%)

1.2

(0.1)

(1.1)

PE Band Chart

PER = 16x PER = 13x PER = 10x
PER = 16x
PER = 13x
PER = 10x

Relative Performance To FBM KLCI

FBM KLCI YTL Power
FBM KLCI
YTL Power

David Chong, CFA (603) 9280 2186 david.chong@rhb.com.my

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1 March 2010 Table 2 : Earnings Review       QoQ YoY   YoY

1 March 2010

Table 2 : Earnings Review

 
   

QoQ

YoY

 

YoY

FYE Jun (RMm)

2Q09

1Q10

2Q10

(%)

(%)

1H09

1H10

(%)

Comments

Power Generation

289

2,515

2,506

(0)

>100

572

5,021

>100

Higher yoy mainly due to contribution from

   

PowerSeraya (2QFY09 and 1HFY09: nil).

Water & Sewerage

523

663

604

(9)

15

1,203

1,267

5

Lower qoq mainly on seasonal dip in

   

volumes and stronger RM (+4.4% qoq vs.

GBP).

Investment Holding

45

26

25

(3)

(44)

130

51

(61)

Revenue

289

2,515

2,506

(0)

>100

572

5,021

>100

Operating profit

435

507

500

(1)

15

876

1,008

15

1HFY10 stronger yoy due to: 1)

   

consolidation of PowerSeraya; and 2)

impact of windfall tax provision in 1QFY09,

partly offset by weaker contribution from

Wessex (earnings and exchange rate

effects). QoQ drop largely reflects the

(seasonally) lower contribution from

Wessex.

Interest expense

(194)

(242)

(214)

(12)

10

(423)

(456)

8

Total debt largely stable qoq at around

   

RM22.9bn as at end-2QFY10 (vs. 1QFY10:

RM22.4bn; 2QFY09: RM15.7bn).

Associates

43

54

58

8

34

76

112

47

Pre-tax profit

284

319

345

8

21

530

663

25

Tax

(69)

(88)

(94)

7

36

(135)

(182)

35

Effec tax rate (%)

24.4

27.6

27.3

 

25.4

27.5

Minority interest

0

0

0

(100)

nm

0

0

nm

Net profit

215

231

250

8

16

395

481

22

Source: Company, RHBRI

 

Table 3 : Sum Of Parts

 
 

RMm

RM/share

 

Domestic power DCF

1,761.6

0.21

DCF at WACC of 6.3%

 

PT Jawa Power DCF

3,100.7

0.37

35% share of DCF at WACC of 8%

Wessex Water

16,391.9

1.95

1.1x P/RCV plus 10% quality premium at RM6/GBP

PowerSeraya

8,676.0

1.03

Cost of investment

 

Other

1,209.7

0.14

Investments and other assets at book value

Total

31,139.9

 

3.71

Less: Net debt

(13,365.4)

(1.59)

Inclusive of cash from warrant conversion

Net NPV

16,781.3

 

2.12

Source: RHBRI estimates

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Table 4 : Earnings Forecasts 1 March 2010 Table 5 : Forecast Assumptions FYE Jun

Table 4 : Earnings Forecasts

1 March 2010

Table 5 : Forecast Assumptions

FYE Jun (RMm) Power Water Investment Holding Turnover

FY09a

FY10F

FY11F

FY12F

FYE Jun Power installed capacity (MW) Paka Pasir Gudang PT Jawa (35%-owned) PowerSeraya

FY10F

FY11F

FY12F

3,403.1

7,886.9

8,031.6

8,221.0

 

2,510.7

2,704.4

2,785.5

2,869.1

808

808

808

179.6

180.0

180.0

180.0

404

404

404

6,093.4

10,771.3 10,997.1

11,270.1

1,220

1,220

1,220

 

3,100

3,100

3,100

EBITDA Margin (%) Dep & Amort Operating profit Other income Interest income Interest expense Associates Exceptionals Pre-tax profit Tax Minority interest Net profit

2,501.9

3,222.1

3,261.1

3,339.4

41.1

29.9

29.7

29.6

Wessex Water Revenue growth (%) EBITDA margin (%)

 

(608.6)

(804.6)

(829.9)

(855.2)

4.0

4.0

4.0

1,686.2

2,417.5

2,431.2

2,484.2

65.0

63.7

62.4

93.8

100.0

50.0

50.0

Source: Company data, RHBRI estimates

 

51.8

14.2

14.9

15.7

(877.5)

(1,165.4)

(1,161.6)

(1,158.0)

225.5

194.5

219.6

219.6

207.0

0.0

0.0

0.0

1,386.9

1,560.9

1,554.2

1,611.5

(740.3)

(374.6)

(373.0)

(386.8)

0.0

0.0

40.0

40.0

646.6

1,186.3

1,221.2

1,264.8

Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank (previously known as RHB Sakura Merchant Bankers). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity securities or loans of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors, officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended securities, subject to the duties of confidentiality, will be made available upon request.

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1 March 2010 This report may not be reproduced or redistributed, in whole or in

1 March 2010

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the actions of third parties in this respect.

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