• Reiterate BUY, TP rises to MYR2.21 from MYR2, 26% upside with c.4% FY24F (Jun) yield. YTL Power delivered another strong set of results, backed by the power generation division which masked Wessex Water’s contribution. Post-earnings estimates upgrade, the stock is trading at an attractive 8x FY24F P/E, or -2SD from the 5-year mean. Its venture into the digital banking and green data centre businesses, in our view, are long-term positives despite the near-term earnings impact being minimal.

• Results a big beat. FY23 core profit of MYR2.1bn (+4.4x YoY) significantly surpassed expectations, and accounts for 142% and 158% of our and Street estimates. Its performance was mainly led by the stronger-than expected contribution from the power generation division. A second interim DPS of 3.5 sen was declared, lifting its FY23 DPS to 6 sen (FY22: 4.5 sen).

• 4QFY23 core profit doubled QoQ to MYR1.1bn on stronger power generation (+5.0x), higher interest income and accrued technical service income related to its power plant in Jordan and narrower losses in the telco division – which masked the weaker contribution from Wessex Water. Although Wessex Water’s revenue improved by 19% QoQ, its segmental losses still widened by 21% due to a higher cost base and it continuing to be dragged by interest accruals on index-linked bonds, which is a non-cash impact. Cumulatively, FY23 core earnings still strengthened by 4.4x to MYR2.1bn, mainly driven by better numbers from power generation.

• Outlook. The power division (which includes the PowerSeraya and Tuaspring plants) should deliver solid earnings. We were guided that the pool prices (which could be referenced by the Uniform Singapore Energy Price (USEP)) only accounted for <15% of PowerSeraya’s profit in 4QFY23. We also expect its JV& associate profit to be much stronger in FY24, led by full-year contributions from its 45%-owned oil shale plant in Jordan. While operating results will still be affected by accounting anomalies/additional finance cost from index-linked bonds, which has no cash impact, Wessex Water numbers should improve as the tariff rose by an average of 9% effective Apr 2023. The 48MW IT load hyperscale data centre in Kulai is being built, and should be in service by 1QCY24. Meanwhile, YTLP confirmed that it is a co-developer with KDEB Waste Management of a proposed 2400 tonnes/day waste-to-energy plant in Selangor, with a gross generating capacity of 58MW. However, the timeline remains uncertain as the project is still undergoing the environment impact assessment and social impact assessment procedures.

• We raise FY24-26F earnings by 10-11% after imputing better contributions from the power generation division, including profit from the 45%-owned Jordan plant. Our new TP includes an unchanged 6% discount, based on its ESG score of 2.7. Downside risks: Weaker-than-expected plant performance, and higher-than-expected operating costs.

Source: RHB Securities Research - 25 Aug 2023