YTLPOWR’s 1QFY24 results beat expectations on stronger-thanexpected performance from PowerSeraya backed by elevated retail prices against low input costs. We raise our FY24-25F net profit forecasts by 33% and 11%, respectively, lift our TP by 13% to RM2.82 (from RM2.50) and maintain our OUTPERFORM call.

YTLPOWR’s 1QFY24 core profit of RM909.6m beat expectations at 42% of both our full-year forecast and the full-year consensus estimate. The variance against our forecast came largely from stronger-than-expected earnings from PowerSeraya. No divided was declared as expected as it usually pays dividend in 2H of the year.

YoY. Its 1QFY24 revenue rose 15% on a broad-base improvement for all business segments with PowerSeraya revenue growing 10% on higher retail and pool prices while investment holding’s revenue doubled as new power plant Attarat Power Company (APCO) started contributing from 4QFY23. Meanwhile, its core profit jumped 4x due largely to a 1.5x jump in PowerSeraya’s earnings on improved margins as well as the strengthening of SGD vs. MYR. However, Wessex Water dipped into a pre-tax loss of RM34.8m from PBT of RM25.4m due mainly to higher interest accruals on index-link bonds of RM156.4m from RM91.8m. Its investment holding turned around to a PBT of RM112.6m from a LBT of RM6.5m buoyed by maiden earnings from APCO as mentioned.

QoQ. Its 1QFY24 revenue fell 23%, largely attributable to a 28% contraction in PowerSeraya’s top line as pool prices declined sharply (Uniform Singapore Energy Price dropped 52% QoQ to SGD178.3/mWh in 3QCY23 from SGD373.7/mWh) while investment holding’s revenue fell 40% as 4QFY23 revenue included accrued payment of technical service income and recurring shareholder’s loan interest for APCO while only recurring loan interest was recorded in 1QFY24. However, 1QFY24 core profit declined only 11% as PowerSeraya’s PBT remained flattish (-4%) as the biggest profit contributor retail business (accounted for high 70% PowerSeraya’s earnings mix) continued to fetch good margins due to favourable gas costs locked in for the long term. Meanwhile, Wessex Water continued to be loss-making due to the abovementioned interest accruals while YES’s losses widened.

Forecasts. We raise our FY24-25F earnings forecasts by 33% and 11%, respectively to reflect higher PowerSeraya’s earnings on elevated retail margins, partially offset by lower Wessex Water’s earnings on higher interest accruals. However, we keep our annual 6.0 sen NDPS assumption unchanged.

Accordingly, we lift our SoP-based TP by 13% to RM2.82 (see Page 3) from RM2.50. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5).

We continue to like YTLPOWR for: (i) the robust earnings prospects of PowerSeraya, and (iii) huge earnings potential from the new data centre venture. 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 - 24 Nov 2023