YTL Power's AI-DC prospects remain intact

KUALA LUMPUR: Analysts revised higher their valuations for YTL Power International Bhd with expectations of improved earnings from Wessex Water and growth prospects from the artificial intelligence-data centre (AI-DC) venture.

In a filing with the Stock Exchange yesterday, YTL Power posted an increase in revenue to RM5.16bil in 3QFY24 compared to RM5.36bil in the previous corresponding quarter.

Net profit rose to RM698.69mil during the quarter over RM519.64mil for the same quarter last year.

The firm declared an interim dividend of three sen per share for the financial year ending June 30, 2024.

RHB Research said the earnings moderation for electricity generator YTL Power Seraya during the quarter was largely anticipated due to weaker pool prices and lower retail margins.

"We reckon such earnings normalisation will happen gradually in FY25 and FY26 as retail contracts still accounted for more than 70% of the output," it said in a note.

However, the research firm expects such earnings moderation in the future to be largely anchored by Wessex Water's earnings recovery.

RHB said it expects the water utility to recover more meaningfully in FY25, backed by annual tariff adjustments.

It said it also expects a year-end outcome to Wessex Water's five-year business proposal (2025-2030) to the water services regulation authority, including a higher return and capex allocation.

Meanwhile, YTL Power is still in discussions to lock in off-takers for the first 100MW Phase 1 AI-DC.

"We understand YTLP is in advanced discussions with potential clients for a possible 20MW portion. Management remains confident to kick-start a major part of the project in 12 months," said RHB.

It said YTL Power is also considering leasing the remaining 16MW of its 48MW conventional data centre to an AI player, or allowing YTL Communications to convert into AI-DC with Nvidia H100 servers.

RHB raised its FY25-26 earnings by 5% to 16% after factoring the earnings contribution from the AI-DC and stronger recovery from Wessex Water.

It maintained "buy" on the share while lifting the target price to RM6.68 from RM4.69 previously.

Separately, MIDF Research believes that YTL Power's venture into data centres will provide the next leg of upside for the group.

However, it said there will be a gestation period before the venture takes off meaningfully.

The research firm lifted its long-term earnings projection for Power Seraya for FY27 and beyond to reflect a higher Ebitda margin of close to S$60/MWh, which it says is a sustainable long-term margin post-earnings normalisation.

All in, MIDF maintained "buy" and lifted its target price to RM6.35 from RM4.22 previously.

"We continue to like YTL Power for its strategic expansion into data centres and renewable energy (RE).

"We also believe YTL Power is a potential beneficiary of the strong RE growth trajectory under NETR, particularly for RE exports given its presence in the Singapore power sector," it said.

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YTL Power , AI-DC , PowerSeraya , energy , utility , Wessex Water , RHB , MIDF


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