YTL undervalued despite surge in share price
Upbeat outlook seen underpinned by key catalysts
“YTL will benefit from external projects such as the proposed High-speed Rail and Mass Rapid Transit 3 projects as wen ll internal projects such as data centres and large-scale solar plants.” Hong Leong Investment Bank Research
PETALING JAYA: YTL Corp Bhd remains “undervalued” even as the conglomerate’s share price hit a new high yesterday of RM2.77 after rallying by over 300% in the past year.
Citing “strong potential upside”, Hong Leong Investment Bank (HLIB) Research raised its fair value for YTL shares by nearly 59% to RM3.33 a share.
The brokerage remains upbeat on YTL’S outlook, underpinned by key catalysts namely its utilities, construction and cement businesses.
On the utilities front, HLIB Research said the group’s 55.6%-owned YTL Power International Bhd is supported by the sustained earnings from its Singaporean power generation unit – YTL Powerseraya Pte Ltd and APCO in Jordan.
Its water and sewerage service company in the United Kingdom, Wessex Water, is expected to turn around in the fourth quarter of financial year 2024 (4Q24).
“We are convinced that YTL’S utilities segmental earnings will continue to grow in coming years.”
New growth from data centre developments will also provide a boost to YTL Power.
It is noteworthy that YTL Data Centre Holdings Pte Ltd (YTLDC) is building a 500 megawatt (MW) data centre campus in Johor, the first data centre park in Malaysia to be powered by renewable solar energy.
On the construction front, HLIB Research said YTL will benefit from external projects such as the proposed High-speed Rail and Mass Rapid Transit 3 projects as well as internal projects such as data centres and large-scale solar plants.
The group’s construction order book stands at about Rm1bil.
“While the construction business is synergistic to the overall group, it is not a key earnings driver, contributing a mere 1% to 2% to total profit before tax across our forecast horizon.”
Thirdly, with regards to the cement section, YTL will see continued strong demand from current projects and upcoming mega projects in the pipeline.
“Segmental profitability is expected to sustain in the near term on the back of favourable coal cost dynamics, while cement average selling prices remain healthy at RM380 per tonne,” according to the research house.
Elaborating on YTL’S data centre efforts, HLIB Research believes the first phase of the planned 48MW DC1 – mainly for Shopee – will begin contributing in 4Q24.
“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.
“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.
It is noteworthy that YTL is collaborating with Nvidia for the AI powered data centre.
“We understand the first stage will be utilising Nvidia’s H100 chipsets and the subsequent stage will be utilising Nvidia recently launched GB200 chipsets.
“We understand that YTL will be one of the first deployment of GB200 globally (given priority by Nvidia), thereby resulting in strong demand for YTL’S AI infrastructure.
“Given YTL’S strong balance sheet, we reckon it could become Nvidia’s go to partner for Asean expansion,” said HLIB Research.