• Bank Negara Malaysia has announced the 5 successful applicants for digital banking licences as approved by the Ministry of Finance.

• One of the winners is a consortium led by Sea Ltd and YTL Digital Capital, which is a unit of YTL Power (YTLP).

• We view the award positively although earnings contribution may not be immediate and significant over the coming 2 years.

• The digital banking business would synergise with the development of YTLP’s 500MW data centre campus in Johor. The first data centre of 72MW is expected to be in service in 1Q2024.

• We believe that YTLP’s stake in the digital banking venture is 40%. We think that total capex for the digital banking venture would come up to about RM300mil. YTLP’s share of the capex would be roughly RM120mil.

• Meanwhile, we reckon that YTLP’s earnings would still be driven by Wessex Waterinthe UK and YTL Power Seraya in Singapore. We forecast pre-tax profit of Wessex Water to inch up by 3.3% to RM510mil in FY22F on the back of a recovery in demand. Looking ahead to FY23F, Wessex Water is expected to enjoy higher revenue supported by an increase in the UK’s inflation rate.

• We maintain HOLD on YTLP with an SOP-based fair value of RM0.67/share. YTLP is currently trading at FY23F PE of 16.5x.

Source: AmInvest Research - 5 May 2022