HLIB Research said that data centres will be YTL Power’s next phase of growth.
PETALING JAYA: YTL Power International Bhd
’s “underappreciated” data centre business fetches a valuation of RM6.3bil or one-fifth of the group’s total market value of over RM32bil.
The estimate by Hong Leong Investment Bank (HLIB) Research was based on a “conservative” 150 megawatt (MW) capacity of YTL Power’s data centre arm, YTL Data Center Holdings Pte Ltd (YTLDC).
The valuation of YTLDC was also benchmarked to Singapore’s Keppel DC Real Estate Investment Trust (REIT), which HLIB Research said is at the “lower end of peers’ comparison”.
Keppel DC-REIT is Asia’s first listed data centre REIT.
Pointing out that data centres will be YTL Power’s next phase of growth, HLIB Research however said that the segment remains underappreciated due to lack of details and understanding among investors.
YTL Power made its maiden debut into the South-East Asian data centre landscape in 2021, after YTLDC acquired a 50% stake in Singapore’s Dodid.
Dodid is a tier-3 12.5MW green hyperscale data centre.
Around the same time, the group – via its 70%-owned SIPP Power Sdn Bhd – also acquired 664 hectares of oil palm estates in Kulai for RM428.8mil, on which the group is developing a 500MW data centre park under YTLDC.
The first phase of this project, designed at 48MW for Shopee’s parent SEA Ltd, is expected to commence operations in stages starting April 2024.
Through its 60%-owned YTL Communications Sdn Bhd, YTL Power is also collaborating with Nvidia for the development of artificial intelligence (AI) cloud and supercomputer infrastructure, to be hosted in YTLDC’s data centre park.
“We believe the initial 100MW AI infrastructure will also be developed in stages over the years, estimated to cost much lower than market anticipated RM20bil.
“Despite the limited information available, a check on various online sources indicate the potential revenue to be in the tune of billions with an earnings before interest, tax, depreciation and amortisation margin of 50% to 70%.
“The management has previously indicated a small profit during starting phases and we expect a gradual ramp up in profitability as the assets reach maturity stage within the next three to four years, alongside potential asset monetisation via a REIT structure,” it said.
Meanwhile, on Wessex Water, HLIB Research said the company is expected to turn around in the financial year ending June 30, 2025 (FY25).
Wessex Water, YTL Power’s water and sewerage operator in the United Kingdom, provides water and wastewater services to 2.9 million customers in the southwest of England.
“Wessex Water is also finalising details for the regulatory period 2025 to 2030, which we expect to entail higher capital expenditure spending and allowable returns, potentially further increasing earnings in FY26,” it said.
HLIB Research also noted that YTL Power’s electricity producer in Singapore, PowerSeraya Pte Ltd, would see its strong earnings and cash flow sustain into the foreseeable future.
“The earnings sustainability is expected to be further supported by a new contribution of 100MW capacity imports (from Malaysia) and electric vehicle-charging infrastructure ventures.
“We understand that PowerSeraya is also bidding for a new 600MW hydrogen ready power plant, which is targeted for commissioning by 2028,” it added.
Looking ahead, the research house maintained its “buy” call on YTL Power but increased its target price to RM5.15 from RM3.90 previously.
This was largely after incorporating the valuation for YTLDC and higher valuation for Wessex Water.
“We believe that current valuation remains undemanding while earnings and dividends may continue to surprise on the upside.”
