• Keep BUY, with new MYR5.94 TP from MYR6.68, 58% upside and c.2% FY25F (Jun) yield. FY24 results surpassed our expectations thanks to better- than-expected contribution from Wessex Water and its telecommunications division. Moving forward, earnings moderation will be largely anchored by Wessex Water’s earnings recovery. Meanwhile, YTL Power is confident of securing Nvidia Corp’s chips by 1HCY25, and we could expect to see the first 20MW artificial intelligence data centre (AI-DC) ramping up next year.

• Above expectations. FY24 core profit of MYR3.3bn (+62% YoY) came in above expectations at 107% and 106% of our and Street full-year estimates. The positive deviation was led by the better-than-expected contribution from Wessex Water and telecommunications division. A second interim DPS of 4 sen was declared, summing up to 7 sen in FY24 (4QFY23: 3.5sen).

• 4QFY24 core profit was up 29% QoQ to MYR896m on a turnaround of Wessex Water led by a tariff hike as well as its telecommunications division following the commencement of a 3-year contract secured in Sabah. This partially offset weaker PowerSeraya contribution resulted from lower power dispatch and higher overhead costs. Cumulatively, FY24 core earnings still improved 62% YoY on the back of stronger PowerSeraya contribution.

• Outlook. We believe PowerSeraya’s earnings normalisation will happen gradually in FY25 and FY26 as retail contracts still accounted for more than 70% of the output. Despite some concerns over potential chip delay from Nvidia, YTLP is also confident of securing chip supplies on time ie by 1HCY25. As the server installations may take months to complete, we could expect to see the first 20MW AI-DC ramping up in CY25. YTLP also guided that a hyperscaler has locked in 40MW new phase of DC for 15 years. As evident by the turnaround in this quarter, we expect Wessex Water to recover more meaningfully in FY25F, backed by annual tariff adjustments. The outcome of a new 5-year plan will be known by end of this year. Similarly, we believe the 3-year MYR950m fibre laying contract secured in Sabah will help to narrow losses in its telecommunications division.

• We tweak our FY25F-26F earnings by 2% post housekeeping adjustments. Our SOP-based TP is lowered to MYR5.94 from MYR6.68 as we impute a lower AI-DC valuation assuming 15x EV/EBITDA with a 40% ramp up (from 60%) in 100MW DC given the remaining 80MW will take some time to kick in. We also apply a 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 - 22 Aug 2024