KUALA LUMPUR (Jan 3): YTL Power International Bhd hit a fresh high on Wednesday, extending last year's rally driven by strong earnings from its Singapore power business and data centre prospects, and prompting investor interest as to how much further the counter can rise.
YTL Power's gains also boosted its 55.6%-parent YTL Corp to a new record high of RM2.01, up nine sen or 4.5%, pushing its market capitalisation to RM22.04 billion. The stock has more than tripled over the past 12 months.
YTL Power jumped as much as 9.7% on Wednesday, before paring gains to close at RM2.80, up 23 sen or 8.9%, with 43.36 million shares traded. At current price, its market capitalisation has swelled to RM22.69 billion.
Over the last 12 months, the counter has more than quadrupled.
The latest rally saw the stock breaching through half of the 10 target prices set by analysts who cover the utilities group. The consensus target price is RM2.80, according to a Bloomberg poll.
Analysts that cover YTL Power have a “buy” rating on the stock, with target prices ranging between RM2.60 (TA Securities) and RM3.90 (Hong Leong Investment Bank).
When contacted, analysts who had set a target price below RM2.80 said they did not plan to downgrade their ratings, but were looking to revise their target prices upwards instead, albeit marginally, ahead of earnings normalisation for YTL PowerSeraya Pte Ltd, the group's Singapore power company.
"Singapore [electricity] market is quite competitive, so their electricity bills are reflective of the natural gas prices, which shot up significantly after the Russia-Ukraine war broke out [in February 2022].
"PowerSeraya signed up a lot of contracts with retail customers when electricity prices were high, so they have locked in around one or two years of high prices, while they have also hedged some of their natural gas at relatively lower costs, that was how the earnings boost came about," explained one analyst, who declined to be named.
Apart from power, the utility group also owns a water and sewerage business in the UK, telecommunications through YES 5G, as well as data centres and solar power generation businesses.
For the financial year ended June 30, 2023 (FY2023), net profit grew 37% to RM2.03 billion from RM1.48 billion in FY2022, while revenue rose 23% to RM21.89 billion from RM17.8 billion.
YTL Power noted in its annual report that 74% of its total revenue in FY2023 was attributable to operations in Singapore, followed by 20% from the UK, 3% each from Malaysia and other countries.
"We don't know how long it (elevated profit from Singapore) will end," said another analyst, "but for two-year contracts signed in early-to-mid 2022, I would say PowerSeraya [earnings] have already peaked".
However, analysts who have forecasted target prices above the RM2.80 mark are expecting a longer earnings normalisation process for PowerSeraya.
"For now, we are projecting a weaker performance for the second half of FY2024, but if there is new development, we will have to relook at it. Because our current valuation has yet to take into account the potential earnings from the data centre business, especially the project with Nvidia. There is still not much clarity on that yet," said a local bank-backed analyst.
In a note to investors last November, Hong Leong Investment Bank observed that YTL Power's Singapore unit continued to deliver "astounding" contribution in 1QFY2024, "leveraging onto the new Tuaspring asset to expand its power generation and retail market share, and combined with sustaining retail tariff with secured low liquefied natural gas costs, have improve the segment’s overall margins".
"Management expects overall FY2024 earnings to be mainly underpinned by the sustaining contribution of PowerSeraya... we believe the current valuation remains undemanding, given the strong earnings of PowerSeraya while dividends may surprise on the upside," said the investment bank as it raised its target price to RM3.90 from RM2.90.
Notwithstanding the recent share price rally, YTL Power is still trading at a single-digit price-to-earnings (PE) multiple of eight times based on forward earnings and 8.4 times based on historical earnings.
Still, a local fund manager said it remains to be seen if its performance can sustain the stock's elevated price.
"The spike in YTL-related stocks' share price recently could also be driven by their KLCI admission, which led certain funds to allocate exposure to them, coupled with their low valuation as well. But it seems overbought to us, they need to show profit to sustain the current price," said the local fund manager.
YTL Power and YTL Corp ended 2023 on a high note. It will be interesting to see if both companies can sustain their stellar performance in 2024.