• Keep BUY, new MYR1.25 TP from MYR1, 19% upside and 6% FY24F (Jun) yield. Post YTL Power’s briefing, we feel positive over its earnings sustainability, anchored by better Wessex Water numbers, elevated electricity pool prices in Singapore, and potential maiden contributions from the Jordan plant. After our earnings upgrade, the stock trades at an attractive 10.5x FY24F P/E, slightly above -1SD from the 5-year mean.

• YTL Power hosted an analyst briefing yesterday that was well attended by fund managers and analysts. Key speaker Managing Director Dato’ Yeoh Seok Hong emphasised its existing assets quality and value. They are backed by strong operating cash flows to anchor dividend payments while debts of each business operation were being ring fenced. Wessex Water’s assets are well protected under a high inflation environment, as the UK’s higher inflation will provide future growth for its regulated asset base and revenue. Recent operating results were affected by accounting anomalies/additional finance costs from index-linked bonds that have no cash impacts. Going forward, Wessex Water’s numbers are likely to improve, as tariffs have been lifted by 9% on average effective April.

• PowerSeraya’s outlook remains bright with an elevated Uniform Singapore Energy Price (USEP) and locked-in competitive gas contracts. Recall: USEP has spiked since 4QCY21 due to a tighter demand-supply condition. It averaged at SGD259/MWh between Jan 2023 and Mar 2023. Despite it is still being lower than 2022’s SGD291/MWh average and Oct 2021’s SGD491/MWh peak, this is still significantly higher than the SGD85/MWh 5-year average (2016-2020). Hence, the earnings contributions are set to remain solid in the near term. Given that most electricity contracts are locked in for two years, we think YTL Power is able to continue locking in attractive rates post expiry of the 2-year contracts.

• Other updates. The 45%-owned Jordan plant’s commissioning is now complete, pending final certification. Project IRR was guided at 13-14%. The Tanjung Jati coal plant project has been scrapped and all costs incurred fully impaired. There could be a potential new project (other fuel source) to be developed at the site. Despite the telecommunication arm likely to stay loss-making, impairment risks are low. The priority is on solutions provision and establishing internal capabilities for developing green data centres and a digital banking arm. Note: A 3-year timeframe is provided by Bank Negara Malaysia to establish digital banking operations

• Stay BUY. We raise FY23F-25F earnings by 13-24% after imputing better contributions from the power generation and Wessex Water arm. Our TP (SOP) was lifted to MYR1.25 with higher valuation from Wessex Water, PowerSeraya and the Attarat asset, and the incorporation of a 2% discount based on an unchanged 2.9 ESG score.

Source: RHB Research - 18 Apr 2023