YTL Power International: A Company with Balanced Future Performance Offensive and Defensive

According to the company's website, YTL Power's business can be divided into four parts until the end of 2023: Power Generation, Water & Sewerage, Telecommunications, and Investment Holding Activities. Water and power utilities are the traditional core businesses of this public utility enterprise, accounting for over 70% of its total revenue. The Data Centers and Digital Banking businesses under the Telecommunications sector are the company's emerging businesses and the main development targets for actively participating in digital transformation and enhancing competitiveness.

In terms of regions, the company's business is spread across the country, mainly in Singapore, the United Kingdom, and Malaysia. Among them, Singapore business accounts for the highest proportion, with revenue from the Singapore region accounting for 74% of total revenue in 2023, followed by the UK, accounting for 20% of total revenue.

According to the latest profit announcement released by the company on May 23, YTL has shown strong growth in after-tax net profit in the past three quarters, with a year-on-year increase of nearly 200%. Meanwhile, total revenue and pre-tax profit have also increased to varying degrees. According to the company's report, the rapid growth is mainly related to the sustained contribution of PowerSeraya, a Singapore-based energy company and a wholly-owned subsidiary of YTL Power. PowerSeraya mainly engages in natural gas procurement, storage, and supply, providing electricity and thermal energy to the Singapore market. Currently, PowerSeraya occupies an important position in Singapore's energy market. Against the backdrop of increasing demand for energy in Singapore, PowerSeraya's financial performance is strong and is expected to continue to grow in the coming financial years. Additionally, the water and sewerage segment recorded higher revenue due to new contracts secured within the non-household retail market and the price increase allowed by the industry regulator.

Currently, YTL has taken the lead in the AI field in the Malaysian market：

YTL's telecommunications sector, YTL Communications, has partnered with Clarion Malaysia, a global automotive supplier specializing in in-vehicle infotainment (IVI) equipment, to successfully launch Malaysia's first 5G-enabled advanced manufacturing line. The use of 5G and AI technology has promoted industrial automation and intelligent manufacturing, making a pioneering contribution to the country's digital transformation goals.

In addition, it has been reported that driven by the Malaysian government's intention to become a regional data center hub, YTL Power has confirmed a partnership with US chip giant Nvidia to establish an AI infrastructure powered by Nvidia technology. The data center involved in this collaboration project is expected to begin operations in the first half of this year. Once the project is implemented, it will greatly enhance the company's revenue and core competitiveness.

This move is expected to strengthen YTLP's business capabilities in water treatment and large-scale solar projects, including water utilities in Johor, Independent Power Plants (IPPs) in Sabah, and large-scale solar projects in Perak. This may bring potential synergies, but its impact on profitability in the short term is relatively small.

In 2023, YTLP's earnings per share will be 0.25 ringgit, a year-on-year increase of 60.82% compared to the previous year. Bloomberg has given a consensus forecast of earnings per share of 0.39/0.40 for 24/25 fiscal years respectively. Hong Leong Investment Bank has given an optimistic forecast of 0.40/0.48, which means that the company's earnings in 2024 are expected to increase by nearly 80%, and the growth momentum will continue in 2025. The main reasons include the following:

1. The strong performance of the company's core business can be seen from the impressive performance in the first three quarters of the 24 fiscal year. As the weather gets hotter, the demand for electricity in Singapore and other regions will increase significantly this quarter.

2. The group's subsidiary, Attarat Power, located in Jordan, began contributing profits from 1QFY24. With the reduction of external loans, it is expected that profits will gradually increase in the coming years. Wessex Water, the company's subsidiary in the UK, is expected to see business improvement in 4QFY24 due to the impact of a 12% tariff increase in April and a weakening of the UK inflation index.

3. The company has made good progress in data centers and artificial intelligence, and is expected to bring significant revenue and profit contributions starting from the 25 fiscal year.

On June 11, 2024, YTLP announced a dividend payout of 0.03 ringgit per share, a slight increase compared to the dividend payout of 0.025 ringgit per share in the same period last year. However, compared to other public utility companies in the market, the company's dividend yield of 1.19% is still relatively low. Looking back at history, the company has basically paid dividends twice a year in the past two years, with a high dividend payout ratio, but the overall dividend amount is relatively low. Considering that the company is actively expanding its business and entering frontier fields such as data centers and AI, the demand for R&D expenses is high. The increase in stock price has slightly weakened its disadvantage of low dividend yield. We can pay attention to the dividend payout situation in the next payout, by which time various businesses are expected to have stable development.

As of June 12, 2024, due to both internal and external positive news, the company's stock price has risen by 26.4%, and has risen by 96.06% since the beginning of the year, far outperforming the Malaysian market.

Currently, the company's P/E ratio is 11.78x, lower than its market peers Tenaga and PGas. In terms of the company's stock price expectations, considering the company's strong performance in core business and future growth potential, Hong Leong Investment Bank has given a target price of 7.45, indicating that the company still has significant room for growth.

However, analysts also warn of potential risks that need to be considered, such as strict ESG standards in developed markets, regulatory risks in the Singapore power industry, and the possibility of the new data center business not taking off as expected.