• BUY, TP of MYR0.95, 32% upside with c.5% FY23F (Jun) yield. YTL Power closed FY22 with a strong quarter, led by stronger numbers from PowerSeraya and a maiden contribution from Tuaspring, which masked Wessex Water’s contribution. We believe that its 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.

• Above expectations. Core profit of MYR360m (-7% YoY) in FY22 beat our and Street estimates, mainly led by the stronger-than-expected contribution from the multi-utilities arm. A second interim DPS of 2.5 sen was declared, lifting FY22 DPS to 4.5 sen (FY21: 4.5 sen).

• YTLP recorded core profit of MYR220m in 4QFY22, marking a strong turnaround from 3QFY22’s MYR2m core loss, on the back of a stronger multi-utilities division (+41%; higher pool gain, retail margins and maiden contribution from Tuaspring) and narrower losses from its telecommunications arm. Cumulatively, despite FY22 revenue surging 66%, led by stronger numbers from PowerSeraya and Wessex Water, core earnings declined by 7%. This was mainly on corporate social responsibility expenses, losses from the power generation segment, and a weaker Wessex Water contribution which stemmed from higher operating costs.

• Outlook. The multi-utilities division is expected to deliver solid earnings ahead, on strong wholesale prices in FY23F as well as the full-year contribution from the Tuaspring power plant. Meanwhile, Wessex Water may see margin pressure, no thanks to the impact of higher inflation on opex and we are guided that such costs could be recovered more meaningfully in FY24F. YTLP is 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 the facility is expected to be in service by 1Q24. The newly acquired Kulai Young Estate in Johor allows YTLP to develop a large-scale solar facility, with a generation capacity up to 500MW. While we are overall positive over the digital banking license win by the consortium of Sea Ltd (SE US, NR) and YTL Power, 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 at least 24 months to complete.

• Stay BUY. Despite strong earnings in 4QFY22, we maintain our earnings estimates as we have yet to factor in earnings from the Tuaspring power plant. Our SOP-based TP remains at MYR0.95, 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 - 26 Aug 2022