• Keep BUY, and new MYR0.95 TP from MYR0.68, 23% upside and c.5% FY23F (Jun) yield. Despite YTL Power’s disappointing 3QFY22 results, we expect earnings to recover in the coming quarters, led by better PowerSeraya and Wessex Water contribution. We believe the aggressive ventures into digital banking and green data centre businesses are long term positives and could be funded internally via proceeds from the ElectraNet disposal.

• Missed expectations. Core profit of MYR140m (-61% YoY) in 9MFY22 fell below our and Street estimates, at 43% and 64% of full-year projections. The negative surprise was led by higher-than-expected losses from the telecommunications arm. Interim DPS of 2 sen was declared, as expected (3QFY21: 2 sen).

• YTLP recorded core losses of MYR2m in 3QFY22 from 2QFY22’s MYR67m core profit, dragged weaker Wessex Water and widened losses from its telecommunications arm. As such, 9MFY22 core earnings declined by 61%, mainly due to the CSR expenses and losses from the power generation. We also saw reduced profitability of PowerSeraya – which, in turn, was led by higher fuel costs despite revenue surging by 116% in 9MFY22.

• Outlook. We are overall positive over the digital banking license win by the consortium of Sea Ltd (SE US, NR) and YTL Digital Capital, a subsidiary of YTLP as the new venture will create and leverage synergies between YTLP and Sea’s Shopee e-commerce platform. However, we do not anticipate an immediate impact upon the award of the digital banking licences, as successful applicants will undergo a period of operational readiness which may take 12-24 months to complete. Meanwhile, YTLP also developing the YTL Green Data Centre Park in Kulai, the first data centre campus in Malaysia to be powered by on-site renewable solar energy. Construction of the first 72MW capacity is ongoing and expected to be in service by 1Q24. We believe YTLP is capable to fund these ventures internally, especially subsequent to the disposal of ElectraNet. On the other hand, the Tuaspring power plant acquisition remains conditional upon the completion of financing. Lastly, PowerSeraya’s profitability has improved significantly (+8.5x QoQ; +1.0x YoY) in 3QFY22 led by higher pool gains and retail margins. We are guided that overall earnings are likely to remain strong on the back of strong wholesale price in FY23F.

• Stay BUY. We cut FY24F earnings by 32% mainly to account for higher losses from the telecommunications arm and tax expenses. Our SOP- based TP is lifted to MYR0.95 post earnings adjustment, accounting for the ElectraNet disposal gain with the incorporation of a 2% discount based on an unchanged ESG scoring of 2.9. Downside risks to our call: Weaker-than- expected plant performance, and higher-than-expected operating costs.

Source: RHB Research - 27 May 2022