• YTL Power International (YTLP) Seraya has won the first Request for Proposal (RFP) under EMA’s (Energy Market Authority of Singapore) new Centralised Process framework, to develop a hydrogen-ready CCGT power plant at the Pulau Seraya Power Station site.

• The construction of the 600MW hydrogen-ready CCGT is estimated to cost S$800mil. The power plant is expected to be ready by 31 December 2027.

• Based on volume, the CCGT power plant will be at least 30% hydrogen-ready with the ability to be retro-fitted to 100%.

• We view this development positively as YTLP would be able to grow its earnings sustainably over the long-term. Currently, YTLP Seraya has a licensed generation capacity of 3,100MW in Singapore. The new power plant would increase YTLP Seraya’s capacity by 19% to 3,700MW.

• The construction cost of the 600MW power plant translates into S$1.3mil per MW or RM4.7mil per MW. We believe that YTLP Seraya would be raising bonds to finance the construction of the hydrogen-ready CCGT plant. Debt-to-equity ratio is likely be 70/30.

• We estimate that the hydrogen-ready CCGT power plant would raise YTLP’s sum-of-parts (SOP) valuation by 8% and improve its pre-tax profit by 9% to 10%.

• We have not accounted for the new power plant in our SOP and profit forecast for YTLP yet as the power plant would only be ready by the end of 2027F. We believe that earnings contribution would only be meaningful in FY28F.

• We maintain BUY on YTLP with a SOP-based fair value of RM5.10/share. YTLP is currently trading at a FY25F PE of 12.5x, which is in line with its 2-year average of 13x.

Source: AmInvest Research - 30 Jan 2024