YTL Power Earnings Preview: Beyond AI Data Centers, Utilities Remain Key Catalysts

YTL Power's stock has risen nearly 112% this year, significantly outperforming the KLCI index. The company is set to release its FY24Q3 financial report on May 22nd. Analysts suggest that Singapore's power segment is the primary driver of profit growth, while earnings from Wessex Water in the UK are anticipated to show improvement.

According to the analyst rating feature on moomoo, out of 12 analysts, 92% have given a 'Buy' rating, while 8% have given a 'Hold' rating.

Hong Leong Investment Bank Research (HLIB Research) indicated that YTL Power is bolstered by consistent earnings from its Singapore power generation unit, YTL PowerSeraya Pte Ltd, as well as from Attarat Power Co in Jordan.

The continued rise in Singapore retail electricity prices is a good sign for the power company PowerSeraya, as 75-80% of its business is driven by the retail market, with the remaining 10-15% contributed by SP Group. In addition to the continued rise in Singapore electricity prices, the stable natural gas prices indexed to Brent crude oil have stabilized costs and improved profit margins. Moreover, PowerSeraya may benefit from Singapore's target of importing up to 4GW of renewable energy (RE) capacity by 2035.

"We expect PowerSeraya’s strong earnings (reporting a consistent RM1 billion pre-tax profit from FY23Q4 to FY24Q2) and cash flow to sustain into the foreseeable future, given the consistently strong retail electricity prices and retail contracts that are entered for one to three-year periods," said HLIB. "The earnings will be further strengthened with the commencement of the 100MW import (from Malaysia) and the commissioning of hydrogen-ready CCGT by 2028," HLIB added.

YTL Power's joint venture in Jordan, Attarat Power, which holds a 45% stake, achieved full commercial operations in late May 2023 and is expected to provide full-year contributions starting from FY2024. ”Jordan APCO's contribution has also been stable at RM70-80 million a quarter since commencement in FY24Q1 and is expected to rise yearly as debts are pared down over the years," said the research house.

CGS International Research (CGSI) has announced that Wessex plans to increase water bills by 11% for its customers as part of its approved annual tariff adjustments. In its statement, Wessex clarified that it intentionally kept last year's tariff increases lower than expected to help mitigate the immediate financial pressure on its customers amid the UK's cost-of-living crisis. This year's adjustment is partly intended to recover the revenue shortfall from April 2023 to March 2024.

"We estimate the tariff revision translates into an increase of at least RM95mil in quarterly revenue for Wessex, all else remaining equal.

"This, in our view, should translate into improved earnings for Wessex and could pave the way for its return to profitability as early as third quarter ending March 31, 2024 (FY24Q3)," CGSIsaid.

YTL Power is further diversifying its portfolio by exploring new business areas. Collaborating with Nvidia, YTL Power is developing an AI data center, AI-DC, with an estimated capacity of 100MW under its YTLCom division. This initiative aims to meet the demands of artificial intelligence and machine learning workloads for highly scalable, high-performance cloud-based solutions. Located in Johor, the data center is less than 50 kilometers from some of the world's most densely interconnected network points in neighboring Singapore. This strategic location not only serves Malaysia's local industries but also supports Singapore's technology sector.HLIB Research stated in its report that the planned 48MW DC1 first phase (primarily for Shopee) is expected to start contributing in the fourth quarter of 2024.

"YTLDC has also started construction for DC2 (estimated 100MW) for artificial intelligence (AI) cloud infrastructure and is working on next data centres in the pipeline (potentially 100MW each) for potential clients," said HLIB. "When the segment matures, the earnings contribution could be in the tune of billions and we do not discount potential monetisation of the assets," it added.