Recent news about the Trump administration potentially tightening restrictions on AI chip exports has led analysts to adopt more conservative AI DC scale-up assumptions for YTL Power pending more clarity. Given this CIMB Securities said it has reduced its FY26–27F core EPS forecasts by 6–18% while maintaining a Buy call with a 17% lower TP of RM4.30.
Lowered AI DC assumption pending more clarity on Trump's AI chip policies
Recent news reports indicate that the Trump administration is considering tighter restrictions on AI chip exports to China. This could include tightening identity checks and inspections to prevent grey market exports or backdoor access to advanced GPUs via Tier 2 markets.
During its 2QFY25 briefing (20 Feb 2025), YTL Power (YTLP) said that it is still in talks with potential off-takers for its 80 MW second AI data centre (DC). While we believe that YTLP should eventually be able attain national validated end-user (NVEU) status (as the off-takers for its AI DCs are US hyperscalers), potentially tougher restrictions could introduce uncertainties and slow down talks with potential off-takers. Thus, to be conservative, CIMB has scaled back the AI DC assumption in its forecast to 20 MW, which YTLP has affirmed is on target for commercial launch in Jul 2025. The house said it will look to re-include the second AI DC into the forecast once clearer indication of YTLP to sign off-takers.
Besides the 20 MW AI DC, the said it continues to assume YTLP will progressively lease out 188 MW of DC capacity on a co-location basis (20 MW of which is to its own AI DC arm). The removal of the 80 MW second AI DC lowers our FY26–27F core EPS estimates by 6–18%, as the AI DC business is highly lucrative with an assumed 70% EBITDA margin. Post revisions, it forecast YTLP's core EPS to fall 10% in FY25F (owing to lower Power Seraya earnings due to lower retail and pool prices), rebound 22% YoY in FY26F to a new record high, and then grow by a further 1% YoY in FY27F.
Maintain Buy with 17% lower SOP-based TP of RM4.30
The house lowered its SOP-based target price (TP) for YTLP by 17% to RM4.30 (from RM5.20), following a revised AI DC assumption. The stock trades at FY26F EV/EBITDA of 7.0x, 11% below its 5-year mean. While the valuation is attractive, CIMB foresees near-term share overhang arising from YTLP's recently proposed bonus warrants exercise. which is essentially a non-renounceable rights issue. Key downside risks: a steeper-than-expected drop in Seraya's EBITDA/MWh, delays in GPU deliveries, and lower AI DC take-up/lease prices. Excluding the AI DC (i.e., 20 MW in our assumption), YTLP's fair value would be RM3.79.
