YTLPOWR’s Singapore unit PowerSeraya has won the right to build a SGD800m 600MW hydrogen-ready combined cycle gas turbine (CCGT) in Singapore. Separately, we revisit our valuation for its data centre, raising it to RM7.02b. We keep our forecasts but raise our TP by 34% to RM4.10 (from RM3.06). Maintain OUTPERFORM.

YTLPOWR, through its wholly-owned Singapore unit PowerSeraya has won the first Request for Proposal (RFP) under Energy Market Authority’s (EMA) Centralised Process to build a 600MW hydrogenready combined cycle gas turbine (CCGT) at its Pulau Seraya Power Station site. The CCGT will be at least 30% volume hydrogen-ready and is estimated to cost SGD800m and targeted to be completed by Dec 2027.

We are positive on this latest plant-up news as it will broaden PowerSeraya’s earnings with prospects of improving its ESG score. Assuming SGD800m capex with 80:20 debt-to-equity ratio, 21-year concession period and IRR of 10%, it would add RM0.13 to YTLPOWR’s SoP valuation.

Separately, we revisit our valuation for YTLPOWR’s data centre investment, benchmarking it against SGX-listed Keppel DC REIT. At present, the market values Keppel DC REIT with a capacity of 300MW in its entirety at an enterprise value of SGD4.27b or RM14.9b, translating to RM49.7m/MW.

Based on RM49.7/MW, YTLP’s entire 500MW data centre carries a gross value of RM24.91b. Having deducted the development cost of RM15.0b and discounted to net present value, we arrive at a valuation of RM7.02b (vs. our previous DCF valuation of RM2.65b based on 150MW capacity at a discount factor of 7.8%)

Forecasts. Maintained as we do not expect contribution from the data centre during our forecast period. Our back-of-envelop net profit (at company level) calculation for the full operation of the 48MW Phase 1 is RM9.4m per year and RM805.6m per year for the 100MW AI data centre.

Valuations. We upgrade our SoP-derived TP by 34% to RM4.10 (from RM3.06 as we: (i) upgraded its data centre valuation to RM0.86/share (from RM0.33), (ii) added RM0.13/DCF share for the new CCGT plant, and (iii) impute new YES valuation of RM0.24 based on actual book value of RM1.95b as per FY23. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5).

Investment case. We continue to like YTLPOWR for: (i) its earnings stability backed by various regulated assets globally, (ii) the robust earnings prospects of PowerSeraya, and (iii) longer-term growth potential from its data centre and digital banking ventures. 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 - 30 Jan 2024