YTL Power's share price remains undemanding - HLIB

KUALA LUMPUR: YTL Power International Bhd's profits remain firmly anchored by YTL PowerSeraya Pte Ltd while the group's other ventures accelerate earnings prospects, says Hong Leong Investment Bank (HLIB) Research.

The research firm, which has a "buy" call on YTL Power and a target price of RM5.55, says the current valuation - RM3.89 at Tuesday's close - remains undemanding given the strong earnings of its Singaporean electrical subsidiary.

According to HLIB, Singapore's retail electricity prices have been trending higher, which bodes well for electrical utility PowerSeraya, as 75-80% of its business is driven by the retail segment while the remaining 10-15% is contributed by SP Group.

"Hence, we expect PowerSeraya’s strong earnings (reported consistent RM1bil pre-tax profit from 4QFY23 to 2QFY24) and cash flow to sustain into the foreseeable future given the consistent strong retail electricity prices, while retail contracts are entered for one to three years period.

"The earnings will be further strengthened with the commencement of the 100MW import (from Malaysia) and the commissioning of hydrogen readied CCGT by 2028," said HLIB.

Elsewhere, the research firm expects its UK water and sewerage services unit, Wessex Water, to improve due to subsiding inflationary pressures.

Wessex has announced an 11-12% increase in average tariffs for wholesales and 12-14% increase for households effective April 2024, which will bring Wessex back into the black in 4QFY24 and on course to a full-year turnaround in FY25, it said.

HLIB notes an estimated 15% additional increment in average tariff based on the upcoming eighth asset management period (AMP8) 2025-2030 proposal for higher GBP2.5bil capex spending (versus GBP1.5bil in AMP7) and higher allowable real return of 4.39%.

"Hence we expect an even stronger results from FY26 onwards with accelerating regulatory capital value (RCV) asset size (GBP4.2bil as at end-2023)."

Meanwhile, the construction of YTL-data centre (DC) is on schedule with the first stage 8MW for Shopee to commence operations in 4QFY24.

Concurrently, YTL-DC is preparing for 100MW AI-DC (under YTLCom collaborating with Nvidia), which is expected to commence operation in stages starting end-2024.

The new setup YTL AI Cloud, in deploying and managing Nvidia’s latest Grace Blackwell-powered DGX Cloud (adopting GB200 GPUs), indicates Nvidia’s strong support of YTL Power’s digital venture.

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HLIB , YTL Power , PowerSeraya , utility


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