YTLPOWR: Diversified Operations Propel Earnings Above Expectations, Positive Outlook Sustained
| Key Information | Details |
|---|---|
| Investment Bank | TA SECURITIES |
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
Investment bank TA SECURITIES reports that recent financial performance met expectations, driven by effective cost management and diversified business operations. The company’s half-year earnings aligned closely with both the bank’s and consensus estimates.
Performance Review
During the second quarter of the fiscal year 2026 (2QFY26), the company’s core profit stood at RM637 million. While this represented a 3% decline year-on-year, it marked a significant 16% increase quarter-on-quarter, indicating a sequential improvement in operational profitability. This performance was largely attributed to strong contributions from its water and sewerage segment, which benefited from recent tariff hikes. Additionally, the data centre business began contributing, adding approximately RM100 million to the group’s earnings from its 62MW capacity. The telecommunications segment also saw narrowed losses, primarily due to contributions from a Sabah infrastructure project.
However, the power generation segment faced headwinds, with its profit before tax (PBT) margin declining by 11% quarter-on-quarter. This was primarily due to softer pool and retail prices for power, indicating some challenges in that specific business unit.
Future Outlook
Looking ahead to the second half of fiscal year 2026 (2HFY26), the company anticipates some weakness in its power generation earnings as it transitions to procuring gas at market prices following the expiry of favourable long-term contracts. This is expected to be mitigated by continued strong performance from the water segment, with an additional 5% tariff hike approval expected for Wessex Water in April to offset rising interest and capital expenditure costs.
The data centre expansion remains a key growth driver, with management projecting 110MW operational capacity by June 2026. The company has already secured 188MW capacity to date and is in negotiations for an additional 100MW from a prospective client. Given the government’s substantial electricity demand targets, the company is also positioned as a leading contender to build a new 1,400MW gas plant. Such a project, estimated at RM5.6 billion in capital expenditure, is expected to yield a 12% internal rate of return and could potentially add 26 sen to the target price per share.
Rating and Valuation
TA SECURITIES maintains its “BUY” recommendation, reflecting confidence in the company’s ability to leverage its diversified asset base and capitalize on future growth opportunities, particularly in the data centre and water segments. The target price has been set at RM0.25, indicating a potential upside of 25.0% from the last traded price of RM0.20. The investment bank has made minor adjustments to its FY26-28F earnings forecasts to account for the evolving contributions from its various business units.
