RHB Investment Research Reports

YTL Power - Another Strong Quarter; Maintain BUY

Publish date: Fri, 24 Feb 2023, 11:32 AM
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  • Keep BUY, with new TP of MYR1.00 from MYR0.92, 35% upside and 8% FY23F (Jun) yield. YTL Power continued to deliver a strong set of results backed by the power generation division which masked Wessex Water’s contribution. Post our earnings upgrade, the stock is trading at an attractive 9x FY24F P/E, which is at -1SD to its 5-year mean. Its ventures into digital banking and green data centre businesses, in our view, are long- term positives despite near-term earnings impact being minimal.
  • Above expectations. 1HFY23 core profit of MYR434m (+2.1x YoY) significantly surpassed expectations at 101% and 103% of our and Street estimates, mainly led by the stronger-than-expected contribution from the power generation arm.
  • 2QFY23 core profit surged 3.3x YoY to MYR284m on the back of stronger power generation (+6.0x) that resulted from higher retail prices masking the weaker Wessex Water contribution and widened losses in the telco arm. Wessex Water recorded LBT of MYR16m (vs 2QFY22’s MYR145m PBT) no thanks to interest accruals on index-linked bonds which is a non-cash impact. As such, 1HFY23 core earnings also strengthened by 2.1x to MYR434m.
  • Outlook. The power 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. We are also guided that the 45%-owned oil shale plant in Jordan could potentially commence operations under the original power purchase agreement (PPA). Meanwhile, Wessex Water may see margin pressure, no thanks to the impact of higher inflation on opex and we are guided that such costs will be subsequently compensated in the coming year’s tariff revenue. 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 1QCY24. Earlier this year, YTLP was granted a MYR1.1bn Islamic term financing facility for the 48MW IT load hyperscale data centre in Kulai. The newly acquired Kulai Young Estate in Johor allows the group to develop a large- scale solar facility, with a generation capacity up to 500MW. The digital banking arm, collectively operated by the consortium of Sea Ltd (SE US, NR) and YTL Power, is expected to commence operations in Jan 2024.
  • Stay BUY. We increase our FY23F-25F earnings by 42-61% after imputing better contribution from the power generation arm (both Tuaspring and PowerSeraya plants). As such, our SOP-based TP is lifted to MYR1.00, 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 - 24 Feb 2023

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