Steady Utilities Income and Data Center Expansion: Is YTL Power the Next Investment Opportunity?

YTL Power's share price has rocketed 53% this year and has more than doubled throughout 2023. Investors maintain an optimistic outlook on the company's future development. Moreover, some analysts have also issued buy recommendations.

TA Securities has expressed optimism regarding YTL Power's ongoing development of a 500-megawatt data center project, noting that the initial phase has already secured Singapore's consumer internet company Sea Ltd as its anchor tenant, which could contribute to earnings as soon as the final quarter of 2024.

YTL Power has announced the establishment of YTL AI Cloud, a provider specializing in GPU-based accelerated computing. The company announced its plans to operate one of the most sophisticated supercomputers on Nvidia's DGX Cloud, powered by Nvidia Grace Blackwell, aimed at boosting generative AI development. This supercomputing capability is expected to bolster local innovators and potentially enhance YTL's future profitability.

HLIB Research highlights the data center sector as a pivotal engine for YTL Power's expansion, yet observes that the business is underrated by investors due to a shortage of information. The research firm places a conservative RM6.3 billion valuation on YTL Power's subsidiary, YTL Data Center Holdings Pte Ltd, which amounts to about 20% of the parent company's RM32 billion market value, premised on an estimated capacity of 150 MW.

Analysts indicate that YTL Power's joint venture in the neighboring country of Singapore is poised to maintain robust earnings in 2024 due to rising retail profit margins. Meanwhile, contributions from the Wessex Water segment in the UK are expected to improve as inflation eases.

YTL PowerSeraya is set to invest more than $5 million to augment the solar power production at its Pulau Seraya Power Station, elevating capacity from the current 1MWp to 5MWp (megawatt-peak) by September 2024. This strategic expansion will further enhance the company's electricity supply capabilities in Singapore. Additionally, YTL PowerSeraya's near-term earnings outlook is bolstered by a robust inventory of gas secured at favorable low prices.

YTL Power's Wessex Water Services Ltd is set to return to profitability with a water tariff hike effective April 1. CGS International Research reports an 11% increase in customer water bills, in line with annual adjustments, potentially boosting Wessex's quarterly revenue by at least RM95 million. The firm predicts this could lead to improved earnings and a return to profitability for Wessex by Q3 2024. Wessex stated it had previously limited tariff hikes to ease customer burdens during the UK's cost-of-living crisis.

There are, of course, differing perspectives. Some analysts contend that profit momentum at PowerSeraya might have peaked, particularly as investments in new capacity increase.

Moreover, the data center business could encounter obstacles during its initial launch and growth stages, with sustained investments potentially impacting short-term profitability. In Q2 FY24, YES, the mobile network of YTL Communications under YTL Power, reported an 8% reduction in losses, though the figures remain considerable. The ongoing deficits at YES are noteworthy and warrant attention.