• Reiterate BUY, TP rises to MYR2.72 from MYR2.43, 18% upside with c.3% FY24F (Jun) yield. YTL Power results beat expectations once again on the stronger power generation division that masked the weaker numbers from Wessex Water. Post earnings estimates upgrade, the stock is trading at an attractive 7x FY24F P/E, below -2SD from the 5-year mean. We expect to see more data centre (DC) deals upon the successful delivery of Phase 1 of its DC project and expediting of solar assets while riding on the implementation of the National Energy Transition Roadmap (NETR).

• A strong start. 1QFY24 core profit of MYR909m (+5.1x YoY, -16% QoQ) surpassed expectations, and accounts for 50% and 40% of our and Street’s full-year estimates. Its performance was mainly led by the stronger-thanexpected contributions from the power generation division.

• 1QFY24 core profit up 5.1x YoY to MYR909m on stronger power generation (+2.5x), higher interest income and lower losses from the telco arm, masking softer numbers from Wessex Water. QoQ, 1Q24 core earnings fell by 16%, largely due to bigger losses from the telco arm and lower power generation contributions. Despite power generation revenue plunging 28% QoQ on lower pool prices, this segment’s profits were largely resilient (-4% QoQ), being partly cushioned by strong retail margins.

• Outlook. The power division (which includes the PowerSeraya and Tuaspring plants) should stay strong in FY24. The Uniform Singapore Energy Price or USEP, a reference for pool prices, recovered from the recent monthly low of SGD159/MWh in August to SGD221/MWh in October. We were also guided that the retail market (>70% of total output) should remain resilient. Wessex Water‘s numbers will still be affected by accounting anomalies/additional finance costs from index-linked bonds, which have no cash impact, but management hopes to book a minimal profit in FY24. The construction of an IT load hyperscale DC in Kulai is ongoing, and the first 8MW capacity is on track to be in service by 1QCY24. Meanwhile, YTLP acquiring 18.9% of Ranhill Utilities (RAHH MK, BUY, TP: MYR1.09) may be a strategic fit, with the latter’s experience in water treatment and power generation, even as it continues to firm its footprint in Johor, where it is building DCs and solar parks.

• We raise FY24F-26F earnings by 2-40% after imputing better contributions from the power generation division. As such, our new TP rises to MYR2.72 after lifting our valuation for its power generation segment to 2x FY23 P/BV. This is to account for its strong earnings delivery, and it implies a segmental 6-9x FY24-25 P/E. Our TP also includes an unchanged 2% discount based on its ESG score of 2.9. Downside risks: Weaker-thanexpected plant performance and higher-than-expected operating costs.

Source: RHB Securities Research - 24 Nov 2023