KUALA LUMPUR: YTL Power International Bhd
's 60%-owned YTL Communication (YES) will have to be more competitive in the next bidding for the Bestari Net contract as the government has decided to call for an open tender.
In its reports, Affin Hwang Capital Research said the contract is estimated to contribute about 40% or RM320mil a year of YES's revenue. It added that YES remains loss-making due to intense price competition within the mobile segment, and the losses could widen should it not be able to retain the Bestari Net contract next year when it expires.
Affin Hwang Capital is forecasting a five sen dividend per share for YTL Power in FY19E-21E on the assumption that it is able to retain the Bestari Net project.
It noted that Wessex Water continues to be the main earnings and cash flow generator for the group, delivering close to 104% of the group's profit before tax in FY18.
"The strong 12.4% yoy PBT growth in FY18 is mainly driven by lower expenditure, as volume is relatively stable while tariff increases is based on the movement of Retail Prices Index (RPI).
"However, there could be some downside risk to our margin forecast in 2020-2025, as based on the pricing plan submitted to the regulator recently, Wessex has proposed for no additional price hikes apart from linking it to the inflation."
The research house has downgraded YTL Power from buy to hold as it believes its current share price is fairly valued despite increasing its target price to RM1.10 from RM1.05.
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