Review

• YTL Power International Berhad’s (YTLPOWR) 9MFY24 core profit of RM2.4bn (more than doubled YoY) came in within expectations at 77% of ours and 79% of consensus’ expectations.

• QoQ: 3QFY24 core profit dropped 15.5% QoQ dragged by (i) lower pool prices and retail margin for Power Seraya and (ii) widening LBT at telecommunications segment driven by lower project revenue. This is despite narrower LBT at Wessex water from lower interest accruals on index-linked bonds and higher interest income from shareholder loans at Attarat Power.

• YoY: 3QFY24 core earnings surged 32.5% YoY on the back of lower interest expense following loan repayments at Power Seraya and higher shareholder loan interest income from Attarat Power.

• YTD: 9MFY24 core profit more than doubled YoY primarily supported by the exceptional performance in Power Seraya from better margins and strengthening of SGD against MYR.

Impact

• No change to our earnings forecasts.

Outlook

• Power Generation: We expect weaker performance in the segment by FY25 as retail electricity contracts with higher tariffs and favourable hedges for natural gas gradually expire. Nonetheless, the segment is expected to remain as the major profit contributor in the coming quarters.

• Water and Sewerage: The segment is expected to register narrower losses moving forward as cost and inflationary pressure eases. The group has submitted its business plan for 2025-2030 to Ofwat in October 2023. Water tariff adjustment, if approved, will be announced by the end of 2024. The segment is expected to turnaround from FY25 onwards.

• Telecommunications: The segment is unlikely to turn to PBT yet in the near term. Potential growth will be from AI cloud computing services which will be provided by 60%-owned YTL Communications. AI cloud computing’s demand is surging globally. The group allocated 100MW of its 500MW Green Data Centre for AI cloud computing, but may increase the allocation depending on demand.

• Investment Holdings: We are upbeat on YTLPOWR’s 500MW Green Data Centre project. Of note, its phase I 48MW IT Load Hyperscale Data Centre already has Sea Limited as its anchor (taking up 32MW). 8MW has already commenced around mid-May, with 8MW scheduled to be taken up each year. We expect the Data centre to make losses in 4QFY24 due to depreciation expenses. Overall, we do not expect data centre contribution to be significant yet in the near term but will be an important earnings driver once scaled up.

Valuation

• We roll forward our base year of valuation and raise our TP for YTLPOWR to RM6.35/share (previous: RM4.48/share) based on SOP valuation. Maintain Buy recommendation.

Source: TA Research - 24 May 2024