KUALA LUMPUR (March 18): YTL Power International Bhd’s (KL:YTLPOWR) exposure to rising energy costs is mitigated by fuel hedging, own mine-mouth supply and power purchase agreement (PPA) pass-through, said Hong Leong Investment Bank (HLIB).

YTL Power’s exposure to higher fuel costs comes mainly from its assets in Singapore’s PowerSeraya, Jordan’s Attarat Power, and Indonesia’s Jaya Power. 

“Management has indicated that PowerSeraya is largely protected through fuel cost hedging for all its contracted commitments. The rise in global fuel costs is expected to drive higher pool and retail electricity prices, reflecting Singapore’s open market structure, resulting [in] short term margin volatility,” said HLIB in a note on Wednesday.

“Management guided retail margins could start stabilising in 2027,” said the house while it maintained its 'buy' call on YTL Power, with an unchanged target price of RM5.08.

“Meanwhile, Jordan’s Attarat Power sources its fuel from own mine-mouth oil shale supply (unaffected by global supply and prices), while Indonesia’s Java Power is generally safeguarded by a fuel cost pass-through mechanism under its PPA structure,” said HLIB.

Despite geopolitical risks in the Middle East, the research house further noted that the group’s 45% stake in Jordan’s Attarat Power is backed by Chinese partners and financiers, lowering the likelihood of direct disruption. The project contributes RM300 million to RM350 million annually to YTL Power.

HLIB highlighted that indirect exposure exists for UK Wessex Water and Malaysian data centres, which may face higher electricity costs. However, these are offset by regulated asset base (RAB) adjustments and cost pass-through to off-takers. 

The group’s upcoming 218 MWp large-scale solar project, expected to achieve commercial operation by mid-2026, will further reduce grid dependence and contribute positively from 2027.

There are now 10 'buy' and five 'hold' calls on the stock. The consensus target price is RM4.16, based on the average of the 15 research houses tracked by Bloomberg.

YTL Power ended Tuesday’s (March 17) trading on Bursa Malaysia at RM2.87, giving the company a market value of RM24.80 billion.