KUALA LUMPUR: Hong Leong Investment Bank (HLIB Research) is bullish on YTL Power International Bhd's prospects.
YTL Power reported a solid core profit after taxation and minority interests (PATMI) of RM477.8 million for the third quarter ended March 31, 2023 (3QFY23), up 44.6 per cent quarter-on-quarter (q-o-q) and 12.3 times year-on-year (y-o-y).
This brings its total nine months of earnings for the fiscal year 2023 (9MFY23) to RM984.9 million, an increase of 5.1 times y-o-y.
Higher earnings were attributed to Singapore Seraya Power's strong recovery on improved retail price and margin, which was partially offset by higher losses from UK Wessex Water on inflationary cost pressure (including index-link interest costs), Yes Communications on lower project contribution, and Holding co and investments on lower associate contribution.
HLIB Research said the results were above the firm's FY23 forecast (108.9 per cent) and consensus (138.1 per cent).
"We expect sustainable Singapore Seraya performance in FY23 and further boosted by UK Wessex Water in FY24," the firm said in a note today.
HLIB Research has raised YTL Power's FY23-25f earnings by 25 to 84 per cent, and maintained a "BUY" with a higher target price of RM2.05, from RM1.50 previously, given the strong earnings recovery and attractive dividend yield.
According to the firm, Singapore Seraya Power has continued to deliver exceptionally strong earnings year-to-date (YTD) following the acquisition of Tuaspring in 4QFY22, leveraging on the new asset, higher retail prices, and locked-in low petrol prices to expand its market share and improve its overall margins.
It also said that the subsidiary will benefit from the awarded 100 megawatts (MW) export/import contract from Malaysia, as well as the construction of electric charging points (not less than 1,200 units) at Housing & Development Board carparks in Singapore.
"The recent approval by the Malaysian government to allow export of renewable energy (RE), is expected to benefit YTL Power, as the group continues to seek earnings growth through RE exports to Singapore.
"UK Wessex Water is expected to turn around in the subsequent quarter after the tariff revision of nine per cent effective April 2023.
"Yes Communications remains a concern given the recent sharp drop in services revenue," HLIB Research said.
HLIB Research also noted that the YTL subsidiary continues to explore innovative 5G services by leveraging Digital Nasional Berhad.
YTL Power is also developing the YTL Green Data Centre (first with Sea Limited), which will be supported by the development of 500MW of large-scale solar in Kulai.
"Furthermore, the group will also leverage onto the awarded digital banking license (Sea Limited-YTLP consortium), targeting the micro, small and medium enterprises segment," it said.