KUALA LUMPUR: RHB research has raised YTL Power International Bhd's earnings forecast for financial year 2024 (FY24) by 14 per cent and target price (TP) by 18 per cent on the strength of its Singapore-based power company, YTL PowerSeraya Pte Limited and Nvidia artificial intelligence-data centre (AI-DC) collaboration.
"We increase our FY24F-26F earnings by 14-56 per cent, mainly on higher PowerSeraya contributions. Our TP is also lifted to RM4.69 with the incorporation of higher PowerSeraya and AI-DC valuations (12 times enterprise value/earnings before interest tax depreciation and amortisation (ebitda)," RHB research said.
The firm is positive on YTL Power, given its resilient earnings from PowerSeraya and gradual improvements from Wessex Water.
As for the recent Nvidia AI-DC collaboration, its preliminary estimates suggest a full ramp-up in the 100 megawatt (MW) AI-DC could generate average gross annual net earnings of USD130 million (60 per cent attributable to YTL Communications).
RHB research has a "Buy" call on YTL Power, with a higher target price of RM4.69 from RM2.95 previously.
RHB research raised its projected PowerSeraya earnings contributions for YTL Power, particularly in the financial year 2025 to 2026 (FY25-26), based on more resilient margins.
The firm said it walked away from a recent closed group meeting with YTL Power managing director Datuk Yeoh Seok Hong with more insight into its Nvidia AI-DC collaboration.
Through the partnership, the company will be on the priority list for chip access and has the potential to be introduced to relevant clients who tap into Nvidia's network.
"The latter has cloud partners it works with that require supercomputing powers and may also take up such capacity for themselves. "Although YTL Power aims to kick-start its first 100MW Phase 1 AI-DC in six to 12 months, this ultimately depends on how soon the infrastructure can be set up and clients' contracts sealed. "It is too preliminary to assess what the earnings will be, given that contracts have yet to be locked in," RHB research said.
"If we assume an AI server costs around US$300,000, the 100MW AI-DC may require about USD3 billion in capex," it added.
RHB Research noted that the partnership's contracts with clients could potentially span the three to five year range.
It estimates that upon full ramp-up, the 100MW AI-DC could deliver average gross annual net earnings of US$130 million (equivalent to 29 per cent of FY22 core earnings) with a project internal rate of return (IRR) of 10 per cent.
This is assuming a capex of US$3 billion, with annual revenue estimated at around US$140,000 per server under a five-year contract, along with 60 per cent Ebitda margins and 70 per cent debt financing.