What Investors Need to Know Before YTLPOWR's Upcoming Earnings Report?

The company is expected to release its financial results for the first quarter of FY25, for the period ending September 30, 2024, 2024, on November 26. Looking back at the company's FY24 performance, the company achieved a net profit of RM3.45 billion for the full year, with a profit of RM1.07 billion  in the fourth quarter alone, exceeding market expectations by approximately 10%. The company also declared an interim dividend of 4 sen per share, bringing the total dividend per share for 2024 to 7 sen.

Core Business: Monitor Singapore's electricity prices to assess YTL Power's power generation performance, which is central to its revenue and profits.

Growth Opportunities: Look for potential growth in new electricity purchases from Malaysia, a waste-to-energy plant, EV charging stations, and a data center project.

Financial Risks: Be aware of YTL Power's high debt ratio, which could increase with future project expansions, posing financial risks.

In the past three months, 13 institutions have provided ratings for YTLPOWR. Among them, ten have given a "Buy" rating, and three have given an "Outperform" rating. The highest target price, RM7.3, was given by Macquarie on November 7th.

YTL Power is a diversified company operating in four main sectors: power generation, water and wastewater management, telecommunications, and investments. Power generation is the most significant segment in terms of revenue. Over the past few years, it has consistently accounted for more than 50% of total revenue, increasing to 74.1% in FY2023. Although it dipped to around 68.4% in FY2024, power generation remains the primary revenue source.

Although YTL Power is headquartered in Malaysia, the company's core power generation business is primarily located in Singapore. According to data from Statista, the company was the fourth largest electricity supplier in Singapore in 2023, with a market share of approximately 13.1%.

Upon reviewing historical financial data, it is observed that the revenue from power generation, which constitutes the highest portion of the company's income, has not shown stable and sustainable growth. The significant increase in revenue for the fiscal year 2023 was largely due to a substantial rise in electricity prices in Singapore, while a decline in Singapore's electricity prices during FY2024 led to a severe drop in revenue. Additionally, a portion of the company's overseas revenue is subject to fluctuations in exchange rates, which can impact its financial performance.

Initially announced in December last year, the project was hailed as one of the world's first data centers to adopt the latest top-tier Nvidia chipsets for artificial intelligence (AI). Fully funded by the company; it was expected to be equipped with Nvidia H100 Tensor Core Graphics Processing Units (GPUs), which were the flagship products of the American chip giant at the time. In March 2024, the chipset was replaced with the newer, faster GB200 NVL72 chipset. Investors were initially excited about the project

However, YTL Power has postponed its data center project timeline, particularly the 100MW artificial intelligence data center, which is not expected to contribute to revenues until FY26. This delay has led analysts to downgrade earnings forecasts for FY25 by 13%, as actual business development cannot support the rapidly rising stock prices. Despite this, YTL Power's managing director, Datuk Seri Yeoh Seok Hong, has denied any uncertainty in the project's collaboration with Nvidia Corp in recent media interviews.

Overall, the group is currently in a phase of intensive capital expenditure. YTL Power's subsidiary, Ranhill Utilities Bhd, is investing in a 100MW natural gas power plant in Sabah. In Singapore, YTL Power's subsidiary, YTL PowerSeraya Pte Ltd, is constructing a 600MW natural gas power plant. The project, which is expected to cost SGD 800 million (RM2.7 billion), is anticipated to be completed by December 2027. Once operational, it will power about 864,000 homes.

In the UK, its wholly-owned subsidiary, Wessex Water, is projected to invest approximately GBP 3.5 billion (RM19.9 billion) over the next five years, with the current cycle's investment amounting to GBP 1.4 billion.

“This initiative is not just a step towards cleaner energy but a catalyst for a resilient and sustainable energy ecosystem in Singapore, reflecting our long-term commitment to the nation’s energy stability,” said John Ng, Group CEO at YTL PowerSeraya. Although these projects do not currently contribute profits and income to the financial report, it is foreseeable that they will generate relatively good income and growth in the future.

YTL Power, a capital-intensive enterprise, has raised market concerns about its financial leverage, especially amid rising debt levels. Investors are vigilant about the potential impact on its balance sheet. Despite these concerns, as of the end of June, the company held 8.89 billion ringgit in cash, with short-term and long-term debts at 3.96 billion ringgit and 28.43 billion ringgit, respectively. This resulted in a net debt ratio of 1.2 times, comparable to industry giants like Tenaga Nasional Bhd and Malakoff Corp Bhd.

Facing capital expenditure pressures, YTL Power's Managing Director, Datuk Seri Yeoh Seok Hong, stated that the company has never faced capital expenditure issues. It always maintains sufficient cash reserves and focuses on current business and profitability. He emphasized that investment requires stable cash flow. Additionally, he mentioned that the company will not cease dividend payments under any circumstances. Each investment is conducted through special purpose entities, which are independently financed and rated, and pay dividends to the company. This indicates that the scale of investment is not the real challenge; rather, the company's operations and expansion will be strictly monitored.

Malaysian Anti-Corruption Commission (MACC) is probing YTL Communications, a subsidiary of YTL Power, for allegedly submitting fraudulent claims worth 2.7 billion ringgit in connection with the 1Bestarinet project. This probe has further eroded investor confidence, resulting in a downturn in YTL Power's stock prices. The investigation underscores the compliance and governance risks that YTL Power and its parent company, YTL Group, are facing.

MIDF maintains its 'Buy' rating on YTL Power with a target price of RM6.2. They have slightly adjusted their earnings forecast for the financial year 2025 (FY25), reducing it by 2.1% to account for the decrease in power generation by Power Seraya in the financial year 2024 (FY24), with a gradual improvement expected in subsequent years. The analysis suggests that YTLPOWR is favored for its strategic expansion into the data center and renewable energy (RE) sectors. It is also believed that YTLPOWR could be a significant beneficiary of the robust RE growth trajectory under the National Energy Transformation Roadmap (NETR), especially regarding RE exports, due to its established presence in the Singapore power sector. Furthermore, the potential listing of YTLPOWR’s key assets is seen as a catalyst that could expedite the stock's value recognition in the market.Meanwhile, they believe that any potential listing of YTLPower's key assets could expedite the recognition of stock value.