YTL Power International - Earnings Moderate, but Still Outsized

Date: 
2024-02-23
Firm: 
KENANGA
Stock: 
Price Target: 
4.10
Price Call: 
BUY
Last Price: 
3.90
Upside/Downside: 
+0.20 (5.13%)

YTLPOWR’s 1HFY24 results met expectations. Its 2QFY24 core net profit eased 9% QoQ as PowerSeraya’s quarterly profit plateaued while losses from Wessex Water doubled. Meanwhile, the progress of its data centre project is on track with a small maiden contribution expected in 4QFY24. We maintain our forecasts, TP of RM4.10 and OUTPERFORM call.

YTLPOWR’s 1HFY24 core profit of RM1.74b came in at 60% and 61% of our full-year forecast and the full-year consensus estimate, respectively. However, we deem the results within expectations as we expect earnings to taper off in 2HFY24 as PowerSeraya’s earnings normalise. While its data centre project should start to contribute in 4QFY24, the number will not be material given the small initial 8MW capacity. No dividend was declared as expected as it usually pays dividend in 2H of the year.

YoY, its 1HFY24 revenue grew 15% on a broad-base improvement for all business segments, led by PowerSeraya (+10%) on higher retail and pool prices while investment holding’s revenue almost doubled as its new power plant Attarat Power Company (APCO) started contributing from 4QFY23. Its 1HFY24 core net profit more than tripled as PowerSeraya continued to benefit from low gas cost coupled with sustained SGD strength against MYR.

Meanwhile, its investment holding PBT soared more than 4x underpinned by maiden contribution from APCO as mentioned, partially offset by RM104.2m pretax loss from Wessex Water (vs. a PBT of of RM9.3m previously) due to higher interest accruals on index-link bonds of RM311.0m (vs. RM186.2m previously).

QoQ. Its 2QFY24 core profit contracted by 9% on a flattish top line as PowerSeraya’s quarterly profits plateaued while losses from Wessex Water doubled. Losses at YES narrowed (-8%) but remained sizeable.

Forecasts. Maintained.

Valuations. We maintain our SoP-based TP of RM4.10 (see Page 3). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5).

Investment case. We continue to like YTLPOWR for: (i) its earnings stability backed by various regulated assets globally, (ii) the strong near-term earnings prospects of PowerSeraya backed by gas inventory locked in at low prices, and (iii) its longer-term growth potential driven by its data centre and digital banking ventures. Maintain OUTPERFORM.

Risks to our recommendation include: (i) stringent ESG standards in developed markets, (ii) regulatory risk in the power sector in Singapore, (iii) the new data centre business fails to take off, and (iv) sustained losses at YES.

Source: Kenanga Research - 23 Feb 2024

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