A strong comeback for multi-utilities in 3Q22
? 9MFY22 core earnings came in below our expectation due to lower-than-expected contribution from Wessex Water and investment holdings.
? The stronger 3QFY22 earnings recovery for multi-utilities was offset by
weaker earnings at Wessex Water and telecommunications divisions.
Key results highlights
YTL Power International’s (YTLP) 9MFY6/22 core net profit came in below our
expectation at 31%, but was in line with Bloomberg consensus at 47% of full-year
estimates. The underperformance was due to lower-than-expected contribution from
Wessex Water and investment holdings in 3QFY22. 9MFY22 core net profit (excluding
RM1.3bn disposal gain of ElectraNet, RM290m allowance for impairments, RM81m fair
value loss on investments and RM19m forex loss) declined 71% yoy on lower gross profit
margin (+6.6%-pts yoy), higher tax expense (+19% yoy) and weaker contribution from
associates (-21% yoy). The group proposed an interim DPS of 2 sen as expected, which
was similar to 9MFY21’s level.
Strong 3QFY22 earnings growth for multi-utilities segment
3QFY22 revenue rose 77% yoy, supported by: (i) multi-utilities (+135% yoy) on higher
pool and fuel oil price, (ii) Wessex Water (+11% yoy) due to new contracts awarded in
the non-household retail market, and (iii) investment holdings (+126% yoy) due to sales
from the Brabazon project in the U.K. and higher rental income. 3QFY22 core net profit
contracted 87% yoy, dragged down by weaker pretax profit at: (i) power generation
(3QFY22 pretax loss of RM5m vs. 3QFY21 pretax profit of RM9m) following the expiry of
the power purchase agreement for Paka Power on 30 Jun 21, (ii) Wessex Water (-35%
yoy) due to seasonality impact on water supply and waste treatment sales and (iii)
telecommunications business (3QFY22 pretax loss of RM86m vs. 3QFY21 pretax loss of
RM27m) due to lower project sales. These more than offset the strong earnings recovery
for multi-utilities (+103% yoy) due to higher pool gains and retail margin.
Reiterate Add
We expect FY22F core earnings to decline on weaker performance at investment
holdings due to corporate social responsibility contribution, though FY23-24F core
earnings will likely improve yoy, supported by better multi-utilities performance given the
higher electricity pool prices and recent exit of some electricity retailers in Singapore. We
are also positive on its recently completed disposal of ElectraNet, as the gross proceeds
of A$1.03bn could be utilised for new ventures, i.e. digital banking, renewable energy and
data centre to optimise its business portfolio. YTLP’s subsidiary YTL Digital Capital was
one of the five successful applicants for Malaysia’s digital banking licences under the YTL
Digital-Sea Ltd (40:60) consortium. Our SOP-based TP is revised to RM1.08 to reflect the
higher valuation for multi-utilities on a strong earnings recovery. Retain Add given the
anticipated stronger earnings in FY23-24F and decent dividend yields.