Kenanga Research said the company’s earnings are backed by various regulated assets globally.
PETALING JAYA: YTL Power International Bhd
is favoured by analysts for its earnings stability, strong earnings prospects and growth potential driven by its data centre (DC) and digital banking ventures.
According to Kenanga Research, the company’s earnings are backed by various regulated assets globally while the near-term earnings of its subsidiary, PowerSeraya, are driven by gas inventory locked in at low prices.
The research house said YTL Power’s results for the financial year ended June 30, 2024 matched its expectations. It noted that although PowerSeraya’s earnings continued to fall in the fourth quarter of this year (4Q24), there were pleasant surprises in the turnaround at Wessex Water (on higher tariff) and telco unit (on construction profit).
Wessex Water is YTL Power International Bhd’s water and sewerage firm in the United Kingdom.
YTL Power’s financial year 2024 (FY24) revenue rose 2% year-on-year (y-o-y) on higher revenues across all business segments except PowerSeraya, which declined 6% y-o-y, due to lower pool price.
Meanwhile, Wessex Water recorded higher revenue, up 22%, on tariff hike and new contracts secured in the non-household retail market while the telco segment posted a 29% jump in revenue mainly from construction revenue of Sabah Point of Presence project.
Kenanga Research said YTL Power’s FY24 core profit jumped 69% to RM3.36bil largely due to a 50% surge in PowerSeraya earnings on better margin due to favourable gas costs locked in for the long term.
Meanwhile, losses at Wessex Water and the telco unit also declined as both segments turned around in 4Q24 due to higher topline. The research house believes nascent earnings of DC booked in 4Q24 will start to contribute meaningfully from the second half of 2025 (2H25) as artificial intelligence (AI) DC starts.
It has upgraded the stock to “outperform” from “market perform”, following the recent price weakness, as it sees value emerging.
Similarly, CGS International (CGSI) Research upgraded the stock to an “add” following its recent share price weakness, but with a lower sum-of-parts-based target price of RM4.50 from RM5.50 previously.
“YTL Power’s share price is down 30% since May, underperforming the FBM KLCI Index which rose 1% over the same period.
“We now see a more favourable risk-reward trade-off at these levels and upgrade the stock to ‘add’ from ‘hold’,” it said.
The research house added that the company continues to be in active discussions with potential offtakers for its 100 megawatt AI DC, with shell and core construction works for the planned facilities progressing well and on track for completion by mid-2025.
“Newsflow on the company securing offtake agreements for these would be key rerating catalysts. Downside risks include execution setbacks and market risks for its DC projects, and heavy capital expenditure for its DCs and Wessex Water leading to increased gearing,” CGSI Research added.
Following the results and recent updates, the research house has cut its FY25 net profit by 13% to factor in a pushback in timeline for the commencement of its AI DC to FY26, but partially offset by earnings improvement at Wessex Water and the telecommunication division which lifted its FY26 earnings per share by 7%.
CGSI Research added that its target price was lowered as it scaled back its margin assumptions for its DCs as it saw diminishing first-mover advantage for YTL Power amid rapidly rising competition.
