Investment Highlights

• We maintain BUY on YTL Power (YTLP) with an unchanged SOP-based fair value of RM6.25/share. Our fair value implies a FY25F PE of 15.6x. We also ascribe a neutral 3- star ESG rating to YTLP.

• We believe that YTLP’s 100MW AI DC (data centre) in Johor is on track for commissioning in 2025F. We maintain our earnings forecast of more than RM1bil for the AI DC in FY26F. The AI DC would be using the GB200 Blackwell chips, which are expected to be out in the market by the end of this year.

• According to Nvidia, GB200 provides up to a 30x performance increase compared to the same number of H100 GPUs. It also reduces cost and energy consumption up to 25x.

• Sea Ltd took up 8MW under Phase 1 of the conventional DC in May 2024, out of the 32MW committed. We do not expect earnings contribution from this to be significant due to the small size.

• Sea is anticipated to take up a capacity of 8MW every year until 2027F. YTLP would also be developing another DC in Johor with a capacity of 40MW.

• We expect YTLP Seraya’s earnings to decline to RM3.2bil in FY25F from RM3.8bil in FY24E. We believe that operating profit margins would ease in FY25F as gas contracts renewed will be at higher costs.

• Also, USEP (Uniformed Singapore Energy Prices) have fallen after surging during the Ukraine War in 2022. According to the EMA (Energy Market Authority of Singapore), average USEP was S$186/MWh in FYE6/24 vs. S$288/MWh in FYE6/23. YTLP Seraya recorded a pre-tax profit margin of 26.1% in 9MFY24 vs. 12.7% in 9MFY23.

• We believe that Wessex Water would swing into the black in FY25F on the back of a lower interest expense. The division has been in the red since FY23 as interest expense on the inflation-linked bonds rose in line with higher inflation rate in the UK. Wessex Water registered a larger pre-tax loss of RM155.5mil in 9MFY24 vs. RM37.8mil in 9MFY23.

• Although Ofwat (UK’s Water Services Regulation Authority) has proposed to reduce Wessex Water’s tariffs under the Draft Determination for PR24 (Price Review for 2025-2030), the decision is not cast in stone. Ofwat will review submissions by the water and sewerage companies and make a final decision on 19 December 2024.

Source: AmInvest Research - 19 Jul 2024