YTLPOWER Profit Sinks on Tax & WW

Well there is no doubt now that the GBP have affected YTLPOWER's profit. Looking at their latest quarterly result, the revenue for their water segment which is Wessex Water is at least RM70 mil lower than previous quarter. Net profits for their water operations is down by some RM96 mil. Not only that, the effect of the windfall tax as expected is now reflected in this quarter as it was paid in July. But before we conclude that YTLPOWER's impending doom, let's look at the report for a better understanding.

Windfall Tax Assumption

No where in the report does it state how much tax they paid for the one time windfall levy paid to the government, but I assume it should not be more than RM100 mil. That's by comparing previous quarter where their electricity business made a operational profit of RM100 mil off a revenue of RM300 mil. But this quarter the Power Generation business only made RM36 mil out of a revenue of RM280 mil. If I assume their operational profit is consistent with last years values, where on revenues of RM289 mil they made a operational profit of RM127 mil. The revenue is quite close to the RM280 mil this current quarter, so I would assume they made at least RM120 mil worth of operational profit this quarter as well.

RM120 mil estimated - RM36 mil reported = RM84 mil possible Windfall Levy

This is pretty close to the assumption YTLPOWER had to pay about RM90 mil of windfall taxes by analysts estimates.


Wessex Water (WW) Growth Vs. GBP Decline

Now we all know that the GBP started it's decline significantly in 2008. Currently the GBP is only RM5.41 = GBP1 compared to RM6.22 = GBP1 in July. That's a 13% decline so far this quarter although it's showing some sign of recovery.

Comparing previous reports, the conversion of the numbers in GBP to RM into their account books (in RM) only takes the actual value of the GBP on the last day of the report, meaning for this quarter it's RM6.22/GBP1 on the 30 September 2008. The next quarter will use the value on the 31st of Dec 2008, regardless of how low or high the GBP was in the middle of the quarter. What only matters is what is the value on the last day of the reporting quarter. In case you're wondering, the report refers to Bank Negara Malaysia's exchange rate for the day.

Now the last day of the current reported quarter, the GBP was RM6.22/GBP1. Last quarter was RM6.51/GBP1 on 30th June 2008. Now using this value from BNM, we can derive how Wessex Water (WW) actually perform for the quarter. Since WW doesn't report quarterly results like the parent and only shows their yearly result ending 31st March every year. There is no way we can know for sure how well or bad is WW doing in this current quarter. But using the last segment result for WW and comparing with this quarter's, and using the exchange rate listed above, we can actually calculate how WW actually perform based on revenue and gross income.

So what does all this concludes is that WW actually showed a decline in revenue and gross profits. Since the actual earnings in GBP actually declined. I suspect as so since the GBP have not really decline as much during the reported quarter but the profits dipped more in terms of percentage than the drop in GBP valuations.

To me this is more important as it is showing how the individual business are doing and in this case the biggest income earner for YTLPOWER is actually showing a decline. If you look at the table, you can see a couple of instances where the GBP actually was near the latest quarterly result but the revenue and profit still registered a growth. Where as this year, on top of the lower valuations in GBP/RM, WW gross earnings actually fall from previous quarter although not far from the quarter they registered almost same conversion rates. Now since this figures does not show the actual Tax incurred, finance costs or even actual net profits, this cannot be taken as the actual condition of WW. But we have to bear in mind what comes in the 2nd quarter of 2009 if the GBP valuations stay low and the growth of WW does not pick up.


All is not Bad

Strangely, YTLPOWER have yet again announced a dividend with the current quarterly results. An interim of 6% subject to tax and another 3% single tier dividends ex-date on 31st Dec 2008. Previous last quarter was a final dividend of 7.5% tax free ex-date on 5th Dec 2008. So by actually buying YTLPOWER at the current price of RM1.72 today and holding it up to 31st Dec 2008, you'll be entitled up to 4.8% dividend yield. All within 2 months!! Good deal huh?