YTL Power’s 1HFY24 results outperforms but at a narrower margin

KUCHING: YTL Power International Bhd’s (YTL Power) first half of financial year 2024 (1HFY24) has continued to outperform market expectations, but its outperformance this time round has come in at a narrower margins as its earnings of RM1.74 billion had met 61 per cent of consensus’ full-year earnings forecast.

According to Midf Amanah Investment Bank Bhd’s research arm (Midf Research) the group’s latest quarterly results (2QFY24) saw its profit before tax (PBT) surging by 345 per cent year on year (y-o-y) due to a strong turnaround in the Singaporean power market which benefitted the group’s Power Seraya asset.

“However, on sequential basis, PBT contribution from the utilities division was largely flattish at -3.4 per cent quarter on quarter (qoq) as Power Seraya’s earnings momentum looks to have peaked,” they said.

“Singapore’s spot electricity prices have eased considerably, and we expect Power Seraya’s margins to gradually normalize as its 1.5 to 2.0-year retail contracts gradually reach expiry and its spot exposure start to reflect market trends,” they added.

Midf Research also opined that they expect the group’s Wessex Water to see earnings improvement 4QFY24 due to easing UK inflation and the annual tariff review in April.

Meanwhile, the group’s cement division saw its PBT rising by 344 per cent y-o-y due to improved margins.

To reflect the exceed expectations, Midf Research guided that they have raised their FY24F net profit by 7.5 per cent to RM3.847 billion to reflect slightly strong than expected margins for Power Seraya through the year. They also raise FY25F net profit by 1.2 per cent to RM3.86 billion as they expect Power Seraya’s earnings to see more significant normalisation.

In contrast, analysts at Kenanga Investment Bank Bhd (Kenanga Research) guided that they are still maintaining their current earnings forecast as they believe Power Seraya’s earnings will taper off in 2HFY24 and still be in line with their FY24F core net profit forecast of RM2.88 billion.

Looking ahead, both analysts believe that YTL Power’s outlook is looking bright due to its data centre (DC) ventures that will begin contribution in 4QFY24.

The first phase of YTL Power’s DC park involves 48MW capacity of which Sea Ltd had committed to be an anchor tenant for 32MW. Rollout will be gradual with 8MW slated to come on stream in 2HFY24 while the remainder will come in addition of 8MW per annum thereafter.

While the initial contributions are expected to be insignificant due to the small initial capacity and subsequent additions, Midf Research is optimistic on the venture’s outlook due to announced NVIDIA AI DC.

While details on the proposed 100MW capacity project are still scant, the research arm believes the project has huge earnings potentially but notes that capital expenditure for the project is much higher at RM190 million per MW compared to the typical RM25 to 30 million per MW of IT load DC. This is because the AI DC will deploy more advanced hardware such as the NVIDIA H100 GPUs.

“From a broader perspective, YTLP’s 664ha Kulai land is able to accommodate up to 500MW DC capacity, which we reckon is its longer-term aspiration,” they added.

Midf research maintains a ‘Buy’ call on YTL Power with a increased target price of RM4.22 from RM2.99 to reflect the group’s upcoming 600MW hydrogen ready CCGT plant, 48MW co-location and 100MW AI DC capacity into their valuations.

Similarly, Kenanga research maintains their ‘Outperform’ call for YTL Power with an unchanged target price of RM4.10.