KUALA LUMPUR (March 26): YTL Power International Bhd’s (KL:YTLPOWR) artificial intelligence data centre (AI DC) segment could contribute up to RM900 million to its net earnings by mid-2027, provided that it achieves full capacity offtake, according to CGS International.

The research house estimated that YTL Power’s AI DC business will operate at an earnings before interest, taxes, depreciation, and amortisation (Ebitda) margin of 65% with Ebitda per megawatt (MW) of US$11.4 million (RM50.4 million), as its capacity scales up from 20MW in mid-2025 to 100MW by mid-2027.

"At full ramp-up, we currently estimate that the AI DC segment can contribute RM900 million to YTL Power’s net earnings," it said.

“In our opinion, securing the remaining 80MW AI DC offtake and greater clarity of these projects are crucial for the stock to be re-rated further. Other catalysts include adjacent fibre connectivity DC-related earnings streams, addition of new earnings, accretive power and/or water assets,” said the house in a note on Wednesday. 

CGS International’s projections are based on financial benchmarks from CoreWeave Inc, a US-based cloud computing firm backed by Nvidia Corp, which is a key supplier of AI chips. YTL Power is also deploying Nvidia’s latest chips in its own AI DC operations.

“We estimate that a typical AI DC operation generates an Ebitda margin of about 65% and Ebitda per MW of US$10 million. This is derived from CoreWeave’s fourth-quarter results, assuming an effective information technology load of approximately 190MW, compared with its 360MW total active power at the end of 2024, with power usage effectiveness of 1.2 times,” CGS International said.

Last week, Bloomberg reported that CoreWeave is planning to raise approximately US$2.7 billion through a Nasdaq initial public offering.

CGS International reviewed CoreWeave’s preliminary prospectus to gain insights into the AI DC business model, noting that its structure provides a useful reference for YTL Power’s AI DC operations, given the limited publicly available information on YTL Power’s venture.

CGS International maintained its ‘add’ rating for YTL Power, keeping its sum-of-parts target price at RM4. However, the rating has not yet factored in the potential impact of the company’s proposed one-for-five bonus issue of free warrants.

Market sentiment remains cautious, due to the potential overhang from the bonus issue, which is expected to be completed by the second quarter of 2025. A key concern is that the warrants will be non-tradable, making them less attractive to institutional investors, who are generally restricted from holding unlisted investment instruments. The issuance involves up to 1.67 billion free warrants, with an exercise price of RM2.45, aimed at raising capital for future expansion.

YTL Power’s share price has fallen more than 21% year-to-date, driven by concerns over US restrictions on AI chip exports, which could impact AI data centres and related investments in Malaysia. The emergence of Chinese AI start-up DeepSeek as a potential competitor, along with the proposed bonus issue, has further weighed on sentiment.

YTL Corp Bhd (KL:YTL), which holds a 54.84% stake in YTL Power, has also proposed a similar fundraising exercise to support the exercise of YTL Power warrants. Its share price has also declined more than 20% since the beginning of the year.

The Employees Provident Fund (EPF), meanwhile, has been accumulating YTL Power shares since emerging as a substantial shareholder in mid-January. To date, the EPF’s stake has increased to 6.116% from 5.043%.

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