Investment Highlights

• We maintain BUY on YTL Power Internaltional (YTLP) with a higher SOP-based fair value of RM2.30/share vs. RM1.50/share previously as YTLP’s FY24F net profit has been raised by 72% to account for higher earnings from the Singapore power unit. Our revised fair value implies a FY24F PE of 9x. We ascribe a neutral 3-star ESG rating to YTLP.

• YTLP has declared a second interim gross DPS of 3.5 sen, which brings FY23 total gross DPS to 6 sen (FY22: 4.5 sen). We forecast a FY24F gross DPS of 6.5 sen, which translates into a yield of 3.7%.

• YTLP’s FY23 net profit of RM2bil was sharply above our forecast and consensus estimates of RM1.2bil. YTLP Seraya in Singapore performed well in 4QFY23. After jumping by more than 3-fold QoQ in 3QFY23, the division’s pre-tax profit surged by another 32% to RM1.1bil in 4QFY23.

• YTLP Seraya benefited from lower gas costs, higher tariffs and robust energy demand in Singapore. In addition, due to the appreciation of SGD, YTLP Seraya’s earnings became larger in MYR terms after translation. The unit’s pre-tax profit margin expanded to 15.2% in FY23 from 3.3% in FY22.

• The water and sewerage division (Wessex Water) chalked up a pre-tax loss of RM94.8mil in FY23 compared to a pretax profit of RM378.1mil in FY22. The unit suffered from higher interest expenses in respect of inflation-linked bonds in FY23. Comparing FY23 against FY22, the division’s pre-tax losses widened to RM57mil from RM47.2mil.

• The mobile broadband unit (mainly YES network) recorded a larger pre-tax loss of RM268mil in FY23 vs. RM197.1mil in FY22, dragged by increases in operating expenses and customer acquisition costs.

• Overall, YTLP’s net profit climbed to RM2bil in FY23 from RM1.3bil in FY22, underpinned by the strong earnings in Singapore coupled with an absence of fair value losses and contributions to a corporate social programme.

• YTLP is currently trading at an attractive FY24F PE of 7x, which is lower than its 2-year average of 24x, while offering decent dividend yields of 3.7%.

Source: AmInvest Research - 25 Aug 2023