Investment Highlights

• We maintain BUY on YTL Power International (YTLP) with a higher SOP-based fair value of RM2.70/share vs. RM2.30/share previously. We have raised YTLP’s FY24F net profit by 17% to account for stronger earnings from YTLP Seraya in Singapore. Our revised fair value implies a FY24F PE of 9x. We ascribe a neutral 3-star ESG rating to YTLP.

• YTLP’s annualised 1QFY24 net profit was 19% above our forecast and 12% above consensus. YTLP’s results exceeded our expectations as YTLP Seraya in Singapore recorded the highest ever pre-tax profit margin of 27% in 1QFY24.

• Despite a 28% QoQ drop in revenue in 1QFY24, pre-tax profit of the Singapore unit was unchanged at RM1bil. Pretax profit margin climbed to 27% in 1QFY24 from 20% in 4QFY23. We attribute this to the group’s large exposure to the high margin retail segment, estimated to account for more than 70% of electricity sales volume.

• Comparing 1QFY24 against 1QFY23, YTLP’s net profit surged by more than 4-fold to RM848mil, underpinned by YTLP Seraya. Pre-tax profit of the Singapore unit surged to RM1bil in 1QFY24 from RM289.9mil in 1QFY23.

• Pre-tax profit margin improved to 27% in 1QFY24 from 8.4% in 1QFY23. YTLP Seraya benefited from lower gas costs, higher demand and improved tariff rates in 1QFY24.

• Currency gains also boosted YTLP Seraya’s earnings contribution. The average exchange rate was S$1.00: RM3.43 in 1QFY24 vs. S$1.00: RM3.21 in 1QFY23.

• Water and sewerage division (Wessex Water) registered a pre-tax loss of RM34.8mil in 1QFY24 in contrast to a pretax profit of RM25.4mil in 1QFY23. Wessex Water was affected by an increase in interest expense from inflationlinked bonds in 1QFY24. On a quarterly basis, Wessex Water’s pre-tax losses narrowed to RM34.8mil in 1QFY24 from RM57mil in 4QFY23.

• Pre-tax losses of the mobile broadband unit (mainly YES network) declined to RM71.5mil in 1QFY24 from RM84mil in 1QFY23 on the back of contribution from projects such as the construction of base stations.

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

Source: AmInvest Research - 24 Nov 2023