KEY INVESTMENT HIGHLIGHTS

• 1QFY25 earnings within expectations
• Normalisation of earnings from Seraya; Wessex Water continues to benefit from tariff increase
• Another 8MW DC coming online by end-2024
• Maintain BUY with a revised TP of RM5.64

Within expectations. YTL Power's (YTLP) 1QFY25 result came in within expectations. The group recorded a core net profit of RM763.9b (- 9.9%yoy), which makes up 24.9%/24.2% of our/consensus full year estimates.

Key takeaways. The decline in core earnings, despite an increase in revenue by +4.4%yoy to RM5.68b, was attributable to weaker earnings from Power Seraya, mainly due to lower pool and retail prices in Singapore, which led to a -27.2%yoy decline in PBT to RM746.7m. This was, however, comparable to the immediately preceding quarter with only a -4.9%qoq decline. Seraya locks in an estimated 70%-80% of volumes into 1.5-2.0-year retail contracts, margins are expected to gradually normalise as these contracts reach expiry. Management guided that margins would remain stable. Meanwhile, Wessex Water continued to benefit from the 12% tariff increase since Apr-24. Coupled with the contribution from Ranhill Utilities, the Water & Sewerage segment recorded a PBT of RM55.3m, rebounding from a loss of -RM34.8m in the same quarter last year. The telco business, while still in the red, saw a narrower loss before tax of -RM24.6m as compared to -RM71.5m in 1QFY24, mainly from higher project revenue. Investment holding activities recorded a loss before tax of -RM112.6m but this was mainly due to an unrealised forex loss of about -RM270m from a shareholder loan extended to the Jordan project entity. Reversing this item shows a PBT of RM157.4m.

DC updates. Following the commissioning of the first 8MW in May-24, management guided that the second phase of another 8MW will be operational by Dec-24, an accelerated timeline as compared to the initial target of mid-2025. Recall that Sea Ltd has committed to be the anchor tenant for 32MW of the initial 48MW capacity data centre (DC) being constructed in Johor. Management is keeping its options open for the remaining 16MW capacity to either be a colocation or an AI DC. In the longer term, YTLP's 664ha Kulai land is able to accommodate up to 500MW DC capacity, of which 100MW is for AI DC. Management expect 20MW of the AI DC to be fully fitted by 1QCY25 and 80MW to be partially fitted by 2QCY5.

Plans for Ranhill Utilities. YTLP is still mum about Ranhill Utilities but hinted at major changes to the water industry. High level discussions are ongoing, which includes the Ministry of Energy Transition and Water Transformation (PETRA) and the National Water Services Commission (SPAN). This will include issues such as water sources, distribution constraints and plans to build new water treatment plants.

Maintain BUY. We maintain our FY25E earnings, and we introduce FY26F. We have previously adjusted Power Seraya's longer term earnings (FY27F and beyond) to reflect higher EBITDA margin of close to SGD60/MWh, which we believe is a sustainable long-term margin post-earnings normalisation. As we roll-forward our valuation base year to FY26F, we adjust our SOP-derived TP to RM5.64 (from RM6.20). Our revised TP implies 11.6x FY26F PER, which remains below YTLP's 10- year mean valuation of 12.4x. We continue to like YTLP for its strategic expansion into data centre and RE. We also believe YTLP is a potential beneficiary of the strong RE growth trajectory under NETR, particularly for RE exports given its presence in the Singapore power sector.

Source: MIDF Research - 27 Nov 2024