Overview

YTL Power International Bhd (YTLPOWR) is a conglomerate multi-utility owner and operator mainly involved in power generation, water & sewerage, telecommunication and data centres. The group has diverse geographical footprints internationally such as in Malaysia (data centre, telecommunication and water & sewerage), Singapore (power generation via Power Seraya), the United Kingdom (water & sewerage via Wessex Water) and Jordan (power generation via Attarat Power).

Investment Themes

• Growth from 500MW Green Data Centre. Malaysia is rapidly emerging as the data centre hub in Southeast Asia, attracting billions in investments for data centre amidst increasing demand for cloud and AI services. We believe YTLPOWR has the first-mover advantage as the group has announced the development of data centre campus in Kulai, Johor as early as April 2022. Since then, YTLPOWR has secured Sea Limited as the anchor tenant for 32MW capacity (out of 48MW in the first phase). 8MW has commenced operations effective May 2024 and will contribute to earnings from 4QFY24 onwards. Additionally, YTLPOWR is involved in AI cloud computing via collaboration with NVIDIA and has allocated 100MW out of 500MW for cloud services.

• Higher allowable return at Wessex Water expected in PR24 (2025-2030 business plan). Effective April 2024, the measured wholesale charges for Wessex Water was adjusted upwards by an overall average of 9.3% to mitigate the impact of inflation. We believe this will help Wessex Water turnaround in 4QFY24. Additionally, the group has submitted its business plan for 2025-2030 (PR24) to Ofwat in October 2023. We expect higher regulated return on the back of higher regulated asset base for the new regulatory period.

• Earnings growth via synergy from acquisition of RANHILL. Recap that YTLPOWR announced the acquisition of 31.4% equity interest in RANHILL from Tan Sri Hamdan, raising its total direct and indirect stake to 53.2%. Although RANHILL is estimated to only contribute additional c.0.4%-0.5% to YTLPOWR’s earnings in FY25- FY26, we believe there may be further upside to the earnings potential as we have yet to factor in the synergistic effect from the acquisition (Figure 1). YTLPOWR could improve RANHILL’s profitability further by leveraging on its vast experience in the utilities sector. Furthermore, RANHILL as the state water operator in Johor is poised to enjoy higher demand for water from data centres.

Risks

• Drop in Singapore’s electricity demand.

• Failure to secure customers for data centre.

Recommendation

• We value YTLPOWR at RM6.35/share based on SOP valuation, implying 17.3x CY25 EPS, compared with peer average of 16.8x CY25 EPS (Figure 2).

Source: TA Research - 2 Jul 2024