YTLPI: Achieving a new record high

HILB Research, May 26, 2023

YTL Power International Berhad
BUY
Target Price: RM2.05
Previously: RM1.50
Current Price: RM1.15

YTLP reported a solid core PATMI of RM477.8m for 3QFY23 (+44.6% QoQ, +12.3x YoY), bringing 9MFY23 to RM984.9m (+5.1x YoY), attributed to the strong recovery of Singapore Seraya Power operation. The results were above HLIB FY23 forecast (108.9%) and consensus (138.1%). We expect sustainable Singapore Seraya performance in FY23 and further boosted by UK Wessex Water in FY24. Raised FY23-25f earnings by 25-84%. Maintain BUY with a higher TP: RM2.05 (from RM1.50) based on 10% discount to FD SOP: RM2.29, given the strong earnings recovery and attractive dividend yield.

Above expectations. Core PATMI surged to RM477.8m in 3QFY23 (+44.6% QoQ; +12.3x YoY), boosting 9MFY23 to RM984.9m (+5.1x YoY). The results were above HLIB FY23 expectation (108.9%) and consensus (138.1%), mainly driven by higher contributions of Singapore Seraya Power. In 9MFY23, there were EIs of -RM62.6m, mainly due to -RM65.3m on impairments/provisions and -RM16.0m fair value loss on investments, partially offset by RM5.7m disposal gain and RM12.0m unrealised forex gain. We have also adjusted the quarterly depreciation charges to better reflect its underlying performance, following the group’s review on lower depreciation policy for Wessex Water lump adjustments in 3QFY23.

Dividend. Declared first interim dividend of 2.5 sen/share (ex-date: 9 Jun 2023).

QoQ; YoY & YTD. Core PATMI improved by +44.6% QoQ and +12.3x YoY to RM477.8m in 3QFY23 and +5.1x in 9MFY23 (to RM984.9m), mainly driven by stronger contribution from Singapore Seraya Power (on improved retail price and margin), which was partially offset by higher losses from; (i) UK Wessex Water on inflationary cost pressure (including index-link interest costs); Yes Communications on lower project contribution; and (iii) Holding co and investments on weaker contribution from associates.

Outlook. Post-acquisition of Tuaspring in 4QFY22, Singapore Seraya Power continued to deliver exceptionally strong earnings YTD, leveraging onto the new asset, higher retail prices and locked-in low gas prices to expand its market share and improve its overall margins. The subsidiary is also expected to gain from the awarded 100MW export/import contract to Singapore from Malaysia and building electric charging points (not less than 1,200 units) at Housing & Development Board carparks in Singapore. The recent approval by Malaysia government to allow export of RE, is expected to benefit YTLP, as the group continues to seek earnings growth through RE exports to Singapore. UK Wessex Water is expected to turnaround in the subsequent quarter after the tariff revision of +9% effective April 2023. Yes Communications remains a concern given the recent sharp drop in services revenue. The subsidiary continues to explore innovative 5G services by leveraging onto DNB. The group is also developing YTL Green Data Centre (first development with Sea Limited), supported by the development of 500MW LSS in Kulai. Furthermore, the group will also leverage onto the awarded digital banking license (Sea Limited-YTLP consortium), targeting the MSMEs segment.

Forecast. We have adjusted earnings for FY23-25f by +84.0%, +56.4% and +25.0% respectively to account for higher revenue and improved margins.

Maintain BUY, TP: RM2.05. We uphold our BUY recommendation, with a higher TP of RM2.05 (from RM1.50), based on 10% discount to FD-SOP (RM2.29), as we believe the current valuation is relatively undemanding, given the strong earnings recovery of Singapore Seraya Power while dividend may surprise on the upside.

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