Review

• YTL Power International Berhad (YTLPOWR) continues to report an outstanding results performance in 2QFY24. 1HFY24 core profit of RM1.7bn (more than tripled YoY) came in above expectations at 61% of ours and 60% of consensus’ expectations. The earnings beat was mainly attributed to better-than-expected performance at Power Seraya.

• QoQ: 2QFY24 core profit dropped 8.7% QoQ as Wessex Water’s loss widened from higher interest accruals on index-linked bonds. Notably, Power Seraya’s PBT was stable QoQ as the segment continued to be boosted by favourable margins.

• YoY: 2QFY24 core earnings more than doubled YoY on the back of better margins (from hedging of natural gas) and strengthening of SGD against MYR for Power Seraya as well as higher shareholder loan interest income from Attarat Power.

• YTD: 1HFY24 core profit more than tripled YoY primarily supported by the exceptional performance in the power generation business.

Impact

• We take this opportunity to factor in the group’s data centre into our earnings forecasts and adjust our FY24 retail margins higher. Following these changes, we raise our FY24/FY25/FY26 earnings forecasts by 9.8%/0.2%/0.2% respectively.

Outlook

• Power Generation: We expect a weaker performance in the segment by FY25 as retail electricity contracts with higher tariffs and favourable hedges for natural gas gradually expire. We understand that the group has yet to import electricity from Tenaga Nasional Berhad and management is unsure when will it commence.

• Water and Sewerage: The segment is expected to register narrower losses moving forward as cost and inflationary pressure eases. The group has submitted its business plan for 2025-2030 to Ofwat in October 2023. Water tariff adjustment, if approved, will be announced by the end of 2024.

• Telecommunications: With the extension of 5G services in tandem with DNB’s nationwide rollout, the segment could gain more subscriber base in the coming quarters. Nonetheless, we believe the segment is unlikely to turn to PBT yet in the near term.

• Investment Holdings: We are upbeat on YTLPOWR’s 500MW Green Data Centre project. Of note, its phase I 48MW IT Load Hyperscale Data Centre already has Sea Limited as its anchor (taking up 32MW). The Data centre is expected to contribute to earnings by 4QFY24. Overall, we do not expect data centre contribution to be significant yet in the near term but will be an important earnings driver once scaled up.

Valuation

• We raise our TP for YTLPOWR to RM4.48/share (previous: RM2.60/share) based on SOP valuation (Figure 4). Maintain Buy recommendation.

Source: TA Research - 23 Feb 2024