Investment Highlights

• We maintain BUY on YTL Power International (YTLP) with an unchanged SOP-based fair value of RM5.10/share. Although we have raised YTLP Seraya’s earnings, our fair value for YTLP is unchanged on lower asset value for Wessex Water due to its losses. Our fair value implies FY25F PE of 13x - at parity to its 2-year average. We ascribe a neutral 3-star ESG rating to YTLP.

• YTLP’s 1HFY24 results were 35% above our forecast and 14% above consensus. YTLP exceeded our expectations due to stronger-than-expected earnings from YTLP Seraya in Singapore. We have raised YTLP’s FY24E net profit by 35% to account for this.

• YTLP Seraya has been recording a pre-tax profit of RM1bil per quarter in the past 3 quarters. We believe that YTLP Seraya is benefiting from the fall in gas costs and retail contracts, which have locked-in profit margins. YTLP also enjoys stronger contribution from YTLP Seraya as the SGD has been appreciating against MYR. According to Bloomberg, average exchange rate was S$1.00: RM3.45 in 1HFY24 vs. S$1.00: RM3.25 in 1HFY23.

• Pre-tax profit of YTLP Seraya in Singapore surged to RM2.1bil in 1HFY24 from RM591.4mil in 1HFY23. Pre-tax profit margin rose to 27.3% in 1HFY24 from 8.6% in 1HFY23.

• The water and sewerage division (Wessex Water) swung into a pre-tax loss of RM104.2mil in 1HFY24 in contrast to a pre-tax profit of RM9.3mil in 1HFY23. This was due to higher interest expenses from inflation-linked bonds. On a quarterly basis, pre-tax loss of the division widened to RM69.5mil in 2QFY24 from RM34.8mil in 1QFY24.

• Pre-tax losses of the mobile broadband unit (mainly YES network) narrowed to RM137.5mil in 1HFY24 from RM155.9mil in 1HFY23 due to increased billings from various projects such as the construction of base stations.

• YTLP is currently trading at an attractive FY25F PE of 10x, which is lower than its 2-year average of 13x.

Source: AmInvest Research - 23 Feb 2024