Investment Highlights

• We maintain BUY on YTL Power International (YTLP) with a higher SOP-based fair value of RM1.33/share vs.  RM1.00/share previously. We raise YTLP’s FY23E net  profit by 77% and FY24F net earnings by 14% to account  for stronger-than-expected contribution from YTLP Seraya  in Singapore. We ascribe a 3-star ESG rating to YTLP.

• YTLP’s annualised 9MFY23 net profit was 76% above our  forecast and 94% above consensus. The group exceeded  our expectations as earnings from the power generation  unit (mainly YTLP Seraya in Singapore) continued to outperform. 

• The power generation division’s pre-tax profit surged to  RM806.4mil in 3QFY23 from RM301.5mil in 2QFY23.  Comparing 9MFY23 against 9MFY22, pre-tax profit of the  power generation unit soared to RM1.4bil in 9MFY23 from  RM224.8mil in 9MFY22. We attribute the improvement in  earnings to higher tariffs and margins.

• Pre-tax profit margin of the power generation division  rose to 12.7% in 9MFY23 from 2.4% in 9MFY22.  Incidentally, the earnings of YTLP Seraya included the  consolidation of Tuaspring. Recall that the RM862.3mil  acquisition of Tuaspring was completed on 1 June 2022. 

• Apart from the strong contribution from the power  generation unit, YTLP also benefited from the absence of  fair value losses on investments and contribution to a  corporate social programme. As a result, YTLP’s core net  profit surged to RM892mil in 9MFY23 from RM117mil in  9MFY22.

• On a negative note, the water and sewerage division  (Wessex Water in the UK) continued to bleed, dragged by  higher interest costs. 

• The unit recorded a pre-tax loss of RM37.8mil in 9MFY23  in contrast to a profit of RM364.5mil in 9MFY22. On a  quarterly basis, the division registered a larger pre-tax  loss of RM47.2mil in 3QFY23 vs. RM16.1mil in 2QFY23. 

• Pre-tax losses of the mobile broadband unit (mainly YES network) widened to RM259.1mil in 9MFY23 from  RM136.3mil in 9MFY22 as customer acquisition costs  increased. 

• YTLP is currently trading at a FY24F PE of 9x, much lower  than its 2-year average of 24x.   

Source: AmInvest Research - 26 May 2023