KUALA LUMPUR: Hong Leong Investment Bank Bhd (HLIB Research) remains upbeat on YTL Power International Bhd' (YTLP) prospects with guided earnings sustainability for the next three years.
In a note today, HLIB Research noted that the strong performance of Singapore PowerSeraya is expected to be sustained for the next three years, mainly due to the continued tight power generation capacity situation in coming years, secured long-term cheap liquefied natural gas (LNG) supply contracts and increasing percentage of renewed retail electricity sales contract with higher tariffs.
The earnings growth is expected to be further supported by a new contribution of 100MW capacity import from Tenaga Nasional Bhd (TNB) and energy vehicle (EV) charging infrastructure ventures.
"We believe PowerSeraya will also leverage Singapore's target of importing up to 4GW renewable energy (RE) capacity by 2035," the bank-backed research firm said.
Further, Attarat Power, YTLP's 45 per cent joint venture in Jordan, has achieved full commercialisation in late May of 2023 and is expected to deliver a full-year contribution starting in FY24.
"We expect contributions of RM50 million for operation and maintenance, attributed RM250 million interest income for shareholders loan and minimal attributed associate's contribution in FY24," HLIB Research noted.
Moreover, there will also be contributions from the mining operations. The arbitration case between Jordan's National Electric Power Company (NEPCO) and APCO will only reach judgment in 2024. YTLP is confident it will not affect APCO's existing power purchase agreement (PPA) terms.
YTLP has recently ventured into data centre (YTL Green Data Center Park), large-scale solar farm (SIPP Power Sdn Bhd), waste-to-energy (collaborate with KDEB Waste Management Sdn Bhd) and digital
banking, which is positioned to be the company's next growth stage.
These ventures are strategically in line with the government's National Energy Transition Roadmap (NETR), which aims to boost renewable energy (RE) and improve the digitalisation of the economy.
The YTLDC has planned for 500MW capacity over ten years, worth RM15 billion in investments.
The first phase, 72MW, is under construction, to be completed in stages (over four years), with starting contribution in early 2024.
"When the assets mature, we do not discount a potential monetisation," HLIB Research noted.
The development of 500MW large-scale solar (LSS) will eventually be developed to support the green energy supply to YTLDC.
"We believe there is an exciting future for the segment as the demand for green data centres is on the rise, as well as new opportunities to export RE to Singapore under NETR by leveraging onto PowerSeraya," the bank-backed research firm said.
Further, the potential development of a waste-to-energy (WTE) plant, a joint venture with KDEB, of 58MW capacity (eventually to expand to 122.5MW, according to KDEB) will provide further earnings upside to YTLP.
Currently, the project is undergoing environmental impact and social
impact assessment, HLIB Research noted.
The research firm also noted that based on the current market capitalisation of YTLP, the company is currently ranked above the 25th position within the KLCI.
If this is maintained, YTLP will be automatically included in the bellwether index in the upcoming November review.
"We reiterate the Buy recommendation, with an unchanged target price of RM2.90, as we believe the current valuation is undemanding, while earnings and dividends may continue to surprise on the upside," said HLIB Research.
/end
