Thursday, December 19

Malaysia’s top stock is poised for more gains after 200% rally

A blistering rally in YTL Power International Bhd. this year has scope to continue as better performance from its overseas assets brightens the earnings outlook for the Malaysian power producer.

The share price has more than tripled in 2023, making it the biggest gainer among local companies with a market capitalization of more than 1 billion ringgit ($213 million). Analysts are still calling for a buy in the stock, predicting that it could climb as much as 61% next year.

YTL Power and its conglomerate parent joined the benchmark FBM KLCI Index on Monday. YTL Corp., controlled by Malaysian tycoon Francis Yeoh and his siblings, has surged about 220% this year. YTL Power and YTL Corp. closed 1.6% and 2.6% lower, respectively, on Monday, relinquishing gains made earlier in the day.

Earnings from YTL Power’s venture in neighboring Singapore will remain strong next year on elevated retail margins, while contribution from its Wessex Water unit in the UK is expected to improve as inflation slows, according to analysts. Both countries make up more than 90% of its group revenue.

There could be potential surprises to its earnings outlook too. YTL Power is expected to benefit from Malaysia’s energy transition plans, particularly in the area of renewable-energy exports. Its tie-up with Nvidia Corp. to build an artificial intelligence data center in the southern Malaysian state of Johor is adding to the optimism.

“Having presence on both sides of the border, they definitely have a big advantage” in potential energy exports to Singapore, even though the regulatory framework has yet to be completed, said Hafriz Hezry Harihodin, an analyst at MIDF Research.

YTL Power’s purchase of an 18.9% stake in Johor-based Ranhill Utilities on Nov. 1 has propelled the water utility firm’s stock. Ranhill’s shares have surged 56% since the deal was announced on Nov. 1 and is on track for a record annual gain.

YTL Power posted net income of 2 billion ringgit on the back of record revenue for the financial year ended June. Its 12-month forward earnings estimate for this quarter alone has risen nearly 28%.

Even after soaring more than 200% in 2023 to a record high earlier this month, valuations remain undemanding. YTL Power is trading at about seven times forward-earnings estimates, compared with its five-year average of almost 13 times.

The company’s improving profitability is also boosting YTL Corp, which derives more than half of its revenue from the power unit. Another potential “wild card” for the main company — which also has construction, cement and hospitality businesses — is the revival of the Singapore-Malaysia high speed rail, said MIDF’s Hafriz.

They are “most likely” to put in a bid for the revived project, he said. Malaysia is currently accepting proposals from companies and consortium who are interested in undertaking the rail link. – Bloomberg

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