YTL Power International’s (YTLP) normalised 3QFY24 net profit declined 16% qoq due to lower contribution from Power Seraya (-18% qoq) and larger losses at its telecommunications segment due to a fall in project revenues.
CGS International, in a Company Note today (May 27), said these more than offset the declining losses at Wessex Water and higher contributions from associates. For 9MFY24, group normalised net profit was up 151%, driven mainly by Power Seraya and Attarat Power, which fully commenced operations at end-May 2023.
At 77% of CGS’s and Bloomberg’s consensus full-year forecasts, CGS deems its net profit as in line as they expect lower sequential earnings in 4QFY24F.
Updates from the recent analyst briefing include Power Seraya saw qoq lower retail margins realised on contract renewals, which more than offset the hot weather-induced higher electricity sales volumes during the quarter. Sea Ltd took delivery of its first 8MW (out of the 32MW firm capacity) on 10 May 2024, with the balance to be equally rolled out annually over 2025-2027.
CGS cited YTLP is in active negotiations with two potential off-takers (either for co-location or AI capacity) for another 16MW, said the company. YTLP also said construction works for an additional 100MW are progressing well with completion expected by year-end and it is receiving keen inquiries from potential off-takers for these capacities.
YTLP is currently in discussions with the government on potential tax incentives and investment allowances for its DC investments.
CGS downgrades YTLP to Hold with a higher TP of RM5.50
CGS raised their TP to RM5.50 on the back of higher valuations for 1) the NVIDIA DC as CGS now assumes a higher EBITDA margin of 80% (from 65%) once the capacities are fully ramped up from FY27F following more clarity on the potential profitability of operations and a lower effective tax rate of 15% (from 24%), and 2) Wessex Water as CGS values it at a higher implied EV/RCV following its operational performance in FY23, which places it at the higher end of the valuation for listed water companies in the UK.
CGS keeps their FY24F26F EPS forecasts are unchanged as they continue to project a normalisation in Power Seraya’s earnings but expect this to be mitigated by a recovery in Wessex Water and incremental contribution from the DCs from 2HFY25F. Following the 356% rise in share price over the past year, CGS downgrade YTLP from Add to Hold. At current prices, the market has baked in ~RM12.5bn in value for its DC business but now the take up rate needs to pick up and details revealed to justify further re-rating.
