YTL Power retained its BUY rating from RHB Investment Bank (RHB), with a target price of RM6.68, indicating a potential 29% upside. RHB made a recent visit to Wessex Water in the UK where it reinforced positive sentiment, highlighting the company's strong operational performance and strategic responses to regulatory requirements, particularly in enhancing environmental sustainability and meeting long-term water demand.
Following the site visit to Wessex Water, which included meetings with management and a tour of key facilities, YTL Power is optimistic about the company's outlook. Wessex Water, known for its top-ranking performance in the water and sewerage sector, serves over 1.4 million people and thousands of businesses, demonstrating robust operational capabilities in water supply and wastewater treatment.
Wessex Water has submitted a substantial 5-year business proposal (2025-2030) to Ofwat, the water services regulation authority in the UK, seeking GBP3.5 billion in capital expenditure compared to the previous GBP1.4 billion. This increase is primarily aimed at meeting stringent legal and regulatory requirements focused on improving river health and sustainability, which could potentially raise average bills by approximately 30%. The decision on this proposal is expected by year-end, influencing future operational strategies.
With the UK experiencing more frequent extreme weather events, including water shortages, Wessex Water and government bodies are intensifying efforts to bolster water conservation and drought management strategies. Plans include converting Mendip quarries into potential reservoirs, a GBP1.1 billion project currently in development stages and awaiting final investment approval, to secure long-term water supply and environmental sustainability.
Maintaining a BUY recommendation, RHB's target price for YTL Power remains at MYR6.68, incorporating a 2% ESG discount based on its ESG score of 2.9 out of 4. The company's strategic initiatives in AI-data centre development further bolster long-term earnings potential, with immediate focus on finalising offtaker agreements for its initial 20MW AI-DC facility.