PETALING JAYA: YTL Power International Bhd, which reported solid earnings recovery over the past three quarters, is expected to see similarly good profits for the financial year 2023 (FY23).
RHB Research said after a briefing with the group that it came away feeling positive about its earnings sustainability, anchored by better numbers at Wessex Water Services Ltd in the United Kingdom, elevated electricity pool prices in Singapore, and potential maiden contributions from its shale oil power plant in Attarat, Jordan.
After imputing the better contributions from power generation and Wessex Water, RHB has raised its FY23 to FY25 forecast earnings by 13% to 24%. It also increased the stock’s target price to RM1.25 from RM1.
According to the research firm, during the briefing, YTL Power’s managing director Datuk Yeoh Seok Hong emphasised the group’s existing assets’ quality and value.
“They are backed by strong operating cash flow to anchor dividend payments while the debts of each business operation were being ring-fenced,” RHB added.
It said that Wessex Water’s assets are well protected in a high inflation environment, as the UK’s higher inflation will provide future growth for its regulated asset base and revenues. It noted that recent operating results of the utility were affected by accounting anomalies and additional finance costs from index-linked bonds that had no cash impacts.
“Going forward, Wessex Water’s numbers are likely to improve, as tariffs have been lifted by 9% on average effective April,” said the research firm.
Over in Singapore, it said the earnings contributions from YTL PowerSeraya Pte Ltd are set to remain solid in the near term as most electricity contracts are locked in for two years.
The research firm also thinks that YTL Power is able to continue locking in attractive rates post-expiry of the two-year contracts.
As for the group’s 45%-owned Jordan plant, it said commissioning is complete, pending final certification. The project’s internal rate of return was guided from 13% to 14%.
Meanwhile, it said the Tanjung Jati coal plant project in Indonesia has been scrapped and all costs incurred are fully impaired.
Going forward, there could be a potential new project to be developed at the site. On the group’s telecommunications arm, it is likely to stay loss-making, but impairment risks are low. The priority is on solution provision and establishing internal capabilities for developing green data centres and a digital banking arm.
Hong Leong Investment Bank Research also upheld its “buy” rating on YTL Power with a higher target price of RM1.50 (from RM1.20).
The research firm said while there was no official dividend guidance, it expects the group to pay out a higher dividend of six sen for FY23 and eight sen for FY24 and FY25, given the guided stronger profits for the year.