YTL Power expects earnings sustainability for the next three years following a record profit of RM477.8mil in its third quarter.
PETALING JAYA: YTL Power International Bhd
is set to get a boost from improved income and cost measures at its various regulated and unregulated assets, say analysts.
YTL Power’s management told analysts in a briefing last week that the company expects earnings sustainability for the next three years following a record high quarterly profit of RM477.8mil in its third quarter ended March 31, 2023 (3Q23), driven by contribution from its power business – PowerSeraya in Singapore.
HLIB Research said YTL Power’s management expects the strong performance of the Singapore subsidiary to be sustainable for the next three years due to several factors including the tight power generation capacity condition in the market. It has also ended take-or-pay liquefied natural gas (LNG) contracts for the whole market in 2022 while securing long-term cheap LNG supply contracts.
There is increasing percentage of renewed retail electricity sales contract with higher tariffs and the group is expected to see new contribution from Tuaspring combined cycle gas turbine.
In the 3Q23, PowerSeraya reported a historical high quarterly pre-tax profit of RM806.4mil with a margin of 19.6%.
The research house said the ongoing heatwave and renewal of retail contracts would help the unit post a stronger performance in the 4Q23.
Earnings support will also come from its UK based water supply and sewage utility, Wessex Water Services Ltd, which has been allowed to raise water tariff by 9% since April, according to the research house. The utility posted a pre-tax loss of RM47.2mil in the recent quarter but the 9% increase in tariff rate should enable it to offset raising operational costs and enable a turnaround in its financial performance in the quarters ahead, said Kenanga Research.
Kenanga Research said the group’s 45%-owned 554-megawatt oil shale-fired Attarah power plant in Jordan has achieved full commercial operation date recently and would receive payment from its off-taker, National Electric Power Co soon.
“The investment was prompted by Jordan’s energy independence goal. At present, the Middle-Eastern kingdom depends heavily on foreign fuel sources namely oil and gas to fire its power plants,” the research house said.
Growth of income and earnings will also come from the group’s RM1.5bil phase one data centre in YTL Green Data Centre Park in Johor, which is on track to be completed in the first quarter of next year.
“The company sees great potential in the new venture given the strong demand from tech companies, especially those from China such as Alibaba, Sea Ltd and others which have set up servers in South-East Asia. It expects Sea Ltd-YTL Digital Bank, a consortium comprising regional eCommerce giant Sea Ltd and YTL Power’s wholly owned YTL Digital Capital Sdn Bhd, to contribute earnings in FY25, Kenanga Research added.
Due to the upswing in prospects, the research house has an “outperform” call on YTL Power with a target price (TP) of RM1.48 per share.
HLIB Research has a “buy” call on the stock with an unchanged TP of RM2.05 a share but taking into consideration a six sen dividend for FY23 and eight sen for FY24-25 respectively.
“We believe the current valuation is undemanding, while earnings and dividend may surprise on the upside,” HLIB Research added.
