• Reiterate BUY and MYR4.69 TP, 24% upside with c.2% FY24F (Jun) yield. YTL Power’s results beat expectations once again on lower-than-expected tax expenses. Post earnings estimates upgrade, the stock is trading at an attractive 10x FY24F P/E, at below -1SD from the 5-year mean. We stay positive on YTLP, given its resilient earnings from PowerSeraya and gradual improvements in Wessex Water.

• Another good quarter. 1HFY24 core profit of MYR1.7bn (+3.0x YoY) surpassed expectations at 63% and 61% of our and Street’s full-year estimates. Its performance was mainly led by stronger-than-expected interest income and lower-than-expected tax expenses.

• 2QFY24 core profit up 1.9x YoY to MYR828m on stronger power generation (+2.4x; from better margins and a stronger SGD), higher interest income, and lower losses from the telco arm, masking softer numbers from Wessex Water. QoQ, 2Q24 core earnings fell by 9%, largely due to the widening losses in Wessex Water.

• Outlook. As retail market prices (>70% of total output) are holding up well – despite Uniform Singapore Energy Prices (USEP), which is the reference for pool prices, having retraced to SGD108/MWh in Jan 2024 (-18% MoM, -51% YoY) – we believe the earnings moderation will not be as significant as initially anticipated, given decent margins from retail contracts and locked-in gas prices. There are not many updates on its first 100MW Phase 1 AI-DC but management remains confident of kick-starting part of the project in 12 months – we believe this will depend on how soon the infrastructure can be set up, and clients’ contracts sealed. YTLP also aims to start its digital banking operations by end-CY24, which in our view, may incur start-up losses in the near term. Meanwhile, as seen in its recent results, Wessex Water’s numbers may remain affected by accounting anomalies/additional finance costs from index-linked bonds, which have no cash impact, but we expect it to recover more meaningfully in FY25. We are positive on the award by the Energy Market Authority to develop a 600MW hydrogen-ready combined cycle gas turbine (CCGT) plant with estimated capex of SGD800m, although it is tough to estimate the potential earnings impact, which would depend on supply- demand dynamics and terms of the gas feedstock agreement.

• We raise FY24F-26F earnings by 10-13% after imputing higher interest income and lower tax expenses. Our SOP-based TP stays at MYR4.69, inclusive of an unchanged 2% ESG discount based on its 2.9 ESG score. Downside risks: Weaker-than-expected plant performance and higher-than- expected operating costs.

Source: RHB Research - 23 Feb 2024