Investment Highlights

• We affirm HOLD on YTL Power International (YTLP) with an unchanged SOP-based fair value of RM0.75/share. Going forward, we believe that YTLP would be affected by economic uncertainties in the UK. Wessex Water accounted for 63% of YTLP’s pre-tax profit (ex-investment holding division) in FY22. We ascribe a 3-star ESG rating to YTLP.

• We consider YTLP’s 1QFY23 core net profit to be within our forecast but below consensus.

• YTLP’s net profit surged to RM173mil in 1QFY23 from RM35mil in 1QFY22 in the absence of contribution to a corporate social programme and fair value loss on investments.

• Looking only at the group’s core operations, YTLP’s pretax profit improved by 40% YoY to RM231mil in 1QFY23, underpinned by multi-utilities division (YTLP Seraya in Singapore).

• Pre-tax profit of multi-utilities division climbed by more than 2x YoY to RM290mil in 1QFY23. This was driven by higher selling prices as gas costs have increased. Revenue of multi-utilities division jumped by 64% YoY to RM3.5bil in 1QFY23. Pre-tax profit margin of multi-utilities division improved to 8.4% in 1QFY23 from 3.6% in 1QFY22.

• On a negative note, pre-tax profit of the water and sewerage division (Wessex Water) slid by 81% YoY to RM25mil in 1QFY23 dragged by higher interest expense and costs of chemicals. The unit recorded a smaller pretax profit margin of 2.4% in 1QFY23 vs. 12.5% in 1QFY22. The division’s revenue was flat at RM1bil in 1QFY23.

• The mobile broadband unit (mainly YES network) registered a larger pre-tax loss of RM84mil in 1QFY23 vs. RM34mil in 1QFY22. We believe that the division experienced higher customer acquisition costs and operating expenses.

• Given the economic uncertainties in UK, YTLP is currently trading at a FY23F PE of 19x vs its 2-year average of 24x.

Source: AmInvest Research - 25 Nov 2022