Investment Highlights

• We maintain BUY on YTL Power International (YTLP) with an unchanged SOP-based fair value of RM1.50/share, implying an FY24F PE of 10x. We ascribe a 3-star ESG rating to YTLP.

• Our net profit forecasts for YTLP are unchanged as we believe that the impact of the implementation of the energy price cap in Singapore is small.

• Recently, the EMA (Energy Market Authority of Singapore) announced that the capping of wholesale power prices from 1 July onwards using a formula tied to natural gas and generation costs.

• The move came about after wholesale prices continued to jump in Singapore this year in spite of sharp drops in natural gas. This was partly due to the hot weather and a shut down in a power plant in May for a turbine upgrade.

• We understand that the price cap would be 2x to 3x the long-run marginal cost of electricity. The price cap kicks in if wholesale prices exceed these levels.

• We believe that the impact on YTLP is minimal. Energy prices in Singapore have eased and are not close to touching the price cap.

• We think that it is unlikely that wholesale energy prices would surge unless there are spikes in demand or major disruptions to gas supply like last year. The USEP (Uniformed Singapore Energy Price) has dropped from a high of S$3,594/MWh on 15 May to S$177/MWh on 13 June.

• Also, about 75% of YTLP Seraya’s energy revenue in Singapore are based on contracts, which are locked in with customers for 2 years. The balance 25% of the revenue is based on spot contracts. Hence, the risk that the price cap would hurt margins is small.

• YTLP is currently trading at a FY24F PE of 8x, which is lower than its 2-year average of 24x.

Source: AmInvest Research - 21 Jun 2023