Investment Highlights

• We maintain BUY on YTL Power International (YTLP) with a higher SOP-based fair value of RM6.25/share vs RM5.10/share previously. Our revised fair value implies FY25F PE of 16x and FY26F PE of 13x. We ascribe a 3-star ESG rating to YTLP.

• We have accounted for the FY26F earnings potential of data centres (DCs) in YTLP’s SOP valuation. Previously, we used the asset value of the DC in our SOP estimate. We have raised YTLP’s FY25F net profit by 1% to account for earnings from YTL Sentul DC 1 (5MW) and the non-AI section of YTL Joho DC 1 (8MW).

• For FY26F, we have raised YTLP’s net earnings by 27% to account for earnings from the AI section of Johor DC 1. We have also assumed that SEA would take up another 8MW o the non-AI DC in FY26F.

• We believe that FY26F is a better reflection of the earnings potential of the DCs as there would be a full-year impact o the 100MW AI DC in Johor. The AI DC is expected to star operation at the end of 2024F. As for the non-AI section, SEA is anticipated to move in this month and take up 8MW o capacity. Eventually, SEA would be taking up 48MW o capacity in total.

• We think that the net profit of the 100MW AI section of Joho DC could potentially be more than RM1bil per year. This is based on a net profit margin of 20% on revenue of RM7bil Our revenue estimate of RM7bil assumes a fee o US$2.13/GPU/hour and 78,431 GPUs (graphics processing unit). Our conservative assumption of US$2.13/GPU/hour is half of Coreweave’s charges of US$4.25/GPU/hour fo Nvidia’s H100 chip. YTLP’s fee could potentially be highe than Coreweave as the group would be using the latest Nvidia GB200 Grace Blackwell superchip.

• Net earnings of the non-AI DC are not expected to be as significant as the AI DC. We estimate net profit of RM5.3mi for the Sentul DC and RM16.8mil for Johor DC. These assume a fee of RM1,750/month on 500 racks for Sentul DC and 1,600 racks for Johor DC. The fee of RM1,750/month is based on the charges of data centre operators for a 21U Rack in Cyberjaya and Kuala Lumpur.

• YTLP’s outlook is positive. Earnings growth is expected to come from the DCs while YTLP Seraya in Singapore provide a stable and recurring base underpinned by locked-in profi margins. YTLP DC’s competitive edge lies in its partnership with Nvidia coupled with cheap land and energy costs.

• YTLP is currently trading at a FY25F PE of 12x, which is marginally below its 2-year average of 13x.

Source: AmInvest Research - 6 May 2024