YTLPOWR’s FY23 results beat expectations, thanks to another solid performance from PowerSeraya and significant maiden contribution from its new Attarat Power Plant. PowerSeraya’s earnings momentum will sustain, driven by high retail prices against low input cost. We raise our FY24F net profit by 41%, lift our TP by 16% to RM2.14 (from RM1.85) and maintain our OUTPERFORM call.

YTLPOWR’s FY23 core profit of RM1.97b beat our forecasts and market consensus again, by 28% and 52%, respectively. The key variance against our forecast came from: (i) stronger-than-expected PowerSeraya’s earnings by 11%, and (ii) higher earnings from investment holding activities (actual RM340.8m vs. forecasted RM9.4m) largely from Attarat Power Plant where it started to recognise technical service income (largely adjusted for accrued payment) as well as shareholder’s loan interest (recurring). However, this was mitigated by pre-tax loss of RM94.8m at Wessex Water against our PBT assumption of RM100m as operating costs remained high. It declared a 2nd interim NDPS of 3.5 sen (ex-date: 09 Nov; payment date: 29 Nov), tallying FY23 NDPS to 6.0 sen which is higher than that of 5.0 sen paid in FY22.

YoY, its FY23 revenue jumped 23% on the back of 27% hike in PowerSeraya revenue which was due to higher retail and pool prices while revenue from investment holding activities surged 140% on the abovementioned Attarat’s maiden contribution. Meanwhile, its FY23 core profit soared 313% to RM1.97b due to higher revenue while Wessex Water turned to losses (pre-tax loss of RM94.8m vs. pretax of RM378.1m) due to higher operating costs coupled with interest accruals on index-link bonds. As a result, group’s interest expense jumped 60% YoY.

QoQ, its 4QFY23 revenue leapt 32% which was on the back of: (i) 27% hike in PowerSeraya revenue, (ii) 19% increase in Wessex Water on improved trading and new contracts within the non-household retail market; (iii) 121% jump in YES which was partly due to Jendela contract, and (iv) 216% expansion in investment holding activities on the said power plant. Its 4QFY23 core profit jumped 93% to RM1.02b which was largely due to the strong earnings from PowerSeraya and new earnings from Attarat but mitigated by losses from Wessex Water (which reported a RM54m non-cash impact arising from interest accruals on index-link bonds). However, YES’s losses narrowed by 91% (partly due to Jendela contract) which was a pleasant surprise.

Forecasts. We raise our FY24F earnings by 41% to reflect higher PowerSeraya’s earnings which momentum is expected to remain elevated in the next 1-2 years as opposed to our previous expectations of six months. We also incorporated earnings from Attarat but trimmed Wessex Water earnings. Meanwhile, we introduce our new FY25F set in which we forecasted EPS to decline by 6% as we expect lower PowerSeraya earnings from a high-base effect. FY24F NDPS is raised to 6.0 sen from 5.0 sen to align with FY23A actual payout. We expect the same 6.0 sen NDPS for FY25.

We upgraded our SoP-based TP by 16% to RM2.14 (see Page 3) from RM1.85, after adjusting PowerSeraya’s valuation where we assumed earnings to normalise post FY25F. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5).

We continue to like YTLPOWR for: (i) the robust earnings prospects of PowerSeraya, and (iii) huge earnings potential from the new data centre venture. Maintain OUTPERFORM.

Risks to our recommendation include: (i) stringent ESG standards in developed markets, (ii) regulatory risk in the power sector in Singapore, (iii) the new data centre business fails to take off, and (iv) sustained losses at YES.

Source: Kenanga Research - 25 Aug 2023