YTL Power International Bhd (YTLP) has been given a positive outlook among analysts, with Maybank Investment Bank Bhd (Maybank IB), MIDF Amanah Investment Bank Bhd (MIDF Research), and RHB Investment Bank Bhd (RHB Research) all maintaining BUY recommendations on the stock. Maybank IB has set a target price (TP) of RM4.70, while MIDF Research revised its TP to RM5.64 from RM6.20, and RHB Research lowered its TP to RM4.70 from RM5.68, reflecting a potential upside of 47-76%. Despite weaker-than-expected 1QFY25 earnings, analysts remain optimistic about YTLP's long-term growth, citing the ongoing recovery at Wessex Water and the promising development of its artificial intelligence (AI) data centres.
MIDF Research noted that YTLP's core net profit dropped by 9.9% year-on-year, primarily due to weaker earnings from Power Seraya, impacted by lower pool and retail prices in Singapore. However, the group's UK subsidiary, Wessex Water, benefited from a 12% tariff increase implemented in April 2024. Additionally, the first phase of YTLP's data centre in Johor is expected to be operational by December 2024, ahead of schedule, with management working on an accelerated timeline for the next 8MW of capacity. Analysts believe that the gradual normalisation of margins at Power Seraya, coupled with the expansion of its data centre and renewable energy segments, will support earnings growth moving forward.
RHB Research echoed a similar sentiment, maintaining its "BUY" call and highlighting that YTLP's weaker-than-expected 1QFY25 earnings were largely due to higher-than-expected interest costs at Wessex Water and a reduced contribution from Power Seraya. Despite these challenges, RHB is confident in the company's future, particularly with the progress of the AI-DC project. The first 20MW phase is on track to be completed soon, with negotiations on the deal at an advanced stage. They foresee further improvements from Wessex Water and the eventual contribution from AI-DC projects, which are expected to boost earnings in the medium to long term.
Maybank IB also supported YTLP, stating that its 1QFY25 results were in line with expectations, with Power Seraya's contribution still resilient despite a slight decline. The analysts are optimistic about the stock's favourable risk-reward profile, with potential catalysts including the recovery at Wessex Water and progress in the AI-DC space. The bank continues to expect a steady recovery in Wessex Water's earnings, alongside the long-term growth of YTLP's data centre business, which could contribute significantly to the company's bottom line by FY26.
In summary, while YTLP's 1QFY25 earnings were impacted by some short-term challenges, analysts remain bullish on the stock's long-term prospects, driven by the ongoing recovery of Wessex Water and the expansion into AI-DC projects. The revised target prices reflect substantial upside potential, with all three research houses maintaining BUY ratings for the company.
