Investment Highlights

• We maintain BUY on YTL Power International (YTLP) with a higher SOP-based fair value of RM1.50/share vs. RM1.33/share previously. We have raised YTLP’s FY24F net profit by 12% to account for a higher pre-tax profit margin at the Singapore utility division. We ascribe a 3- star ESG rating to YTLP.

• Here are the key takeaways from YTLP’s briefing last week: -

• We understand that earnings of the Singapore unit would be sustainable over the coming few years. This is due to resilient industry demand and a lack of new capacity.

• In addition, tariffs are expected to be supported by the expiry of vesting contracts, which would take place this year. We forecast pre-tax profit of the division to be RM1.8bil in FY23E (9MFY23: RM1.4bil) vs. RM416mil in FY22.

• Wessex Water’s earnings may continue to be affected by higher interest expenses in relation to inflation-linked bonds.

• Even though the unit’s revenue would be supported by a 9% tariff hike in April, the impact of the increased interest expense is envisaged to be sharper. Recall that the unit recorded a pre-tax loss of RM37.8mil in 9MFY23 vs. a profit of RM364.5mil in 9MFY22.

• The digital banking operations are expected to be launched in 2024F. We do not expect earnings contribution from the digital banking business to be significant in FY24F and FY25F. To recap, YTLP has a40% stake in the digital banking unit while Sea Ltd has 60%.

• YTLP is currently trading at a FY24F PE of 10x, which is substantively lower than its 2-year average of 24x.

Source: AmInvest Research - 6 Jun 2023