YTL Power started FY23 with a strong quarter, led by stronger numbers from the power generation division which masked Wessex Water’s contribution. RHB Research holds the opinion that its aggressive ventures into digital banking and green data centre businesses are long-term positives.
Above expectations. 1QFY23 core profit of MYR150m (+98% YoY) beat expectations at 37% and 41% of the Street’s estimates, mainly led by the stronger-than-expected contribution from the power generation arm. Note that its multi utilities business, which comprises PowerSeraya and Tuaspring plants, is now under the power generation division.
1QFY23 core profit surged 98% YoY to MYR150m on the back of stronger power generation that resulted from higher retail prices masking the weaker Wessex Water contribution (-81%) and widened losses in the telco arm no thanks to lower project revenue.
Wessex Water earnings have been dragged by the effect of inflationary pressures both on the base costs (energy in particular) and on index-linked bond interest (non-cash impact). 1QFY23 core earnings declined by 37% QoQ on higher finance cost (+20%) and tax expenses (+91%).
Outlook. The power division is expected to deliver solid earnings ahead, on strong wholesale prices in FY23F as well as the full-year contribution from the Tuaspring power plant. PowerSeraya was appointed as the electricity importer for a 2-year trial to import 100MW of electricity from Malaysia.
Meanwhile, Wessex Water may see margin pressure, due to the impact of higher inflation on operating expenditure (opex) and the research house is guided that such costs could be recovered more meaningfully in FY24F.
YTLP is also developing the YTL Green Data Centre Park in Kulai, the first data centre campus in Malaysia to be powered by on-site renewable solar energy. Construction of the first 72MW capacity is ongoing and the facility is expected to be in service by 1Q24. The newly acquired Kulai Young Estate in Johor allows the group to develop a large-scale solar facility, with a generation capacity up to 500MW.
The digital banking arm, collectively operated by the consortium of Sea Ltd (SE US, NR) and YTL Power, is expected to commence operations in Jan 2024.
RHB Research has reiterated BUY rating on YTL Power. It has also adjusted its forecast upward for FY23F-25F earnings by 12-14% after imputing better contribution from the power generation arm.
Despite earnings adjustment, its SOP-based target price (TP) lowered to MYR0.92 after updating the latest data from its FY22 Annual Report, coupled with the incorporation of a 2% discount based on an unchanged ESG scoring of 2.9.
Downside risks to the research house’s call are weaker-than-expected plant performance, and higher-than-expected operating costs.
