YTL Power currently lacks catalysts

by **Cals** Mon 16 Feb 2015, 17:43

YTL Power currently lacks catalysts

By RHB Research / RHB Research | February 16, 2015 : 10:20 AM MYT

YTL Power International Bhd ([You must be registered and logged in to see this image.] Financial Dashboard)
(Feb 13, RM1.59)
Maintain neutral call with an unchanged target price (TP) of RM1.69. We maintain our “neutral” call, earnings forecasts and TP of RM1.69 (4% upside). In our opinion, YTL Power currently lacks catalysts as it has yet to secure a new power plant project in Malaysia, while its existing concessions are near expiry.
Not helping the sentiment regarding the stock were weak performances from YTL PowerSeraya Pte Ltd in Singapore and sustained losses at its Worldwide Interoperability for Microwave Access (WiMAX) unit.
Also, the market is unlikely to get excited over its participation in overseas greenfield power plant projects given the high execution risk.
YTL Power’s first half of financial year 2015 (1HFY15) core net profit of RM478.2 million (excluding foreign exchange gains) came broadly in line with expectations at 55% and 47% of our full-year forecast and consensus estimates respectively.
Core net profit for 1HFY15 declined 16.2% year-on-year (y-o-y) on the back of weaker contribution from PowerSeraya in Singapore (due to increased competition from expanded capacity in the power-generation sector in Singapore) and widened losses at its WiMAX division.
There was a slight improvement in performance from its power generation business in Malaysia and Wessex Water Services Ltd in the United Kingdom.
We are mindful of the high execution/construction risk of greenfield power plant projects YTL Power is pursuing in India and the Middle East as they are prone to delays, hence resulting in potential cost overruns.
We believe as far as YTL Power is concerned, “home is where the rerating catalyst is”. However, a new power plant project in Malaysia has thus far remained elusive.
There is a possibility that one of YTL Power’s power plants (retiring in September 2015) may be renewed for one to two years due to delays in the completion of a competitor’s 1000mw coal-fired power plant. However, even if this happens, the impact on earnings is likely to be one-off. — RHB Research, Feb 13
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This article first appeared in The Edge Financial Daily, on February 16, 2015.