KUALA LUMPUR: Wessex Water, YTL Power International Bhd's water and sewerage firm in the United Kingdom (UK), has a bright outlook due to its high planned capital expenditures (capex) and excellent operating performance, says RHB Investment Bank Bhd (RHB Research).
According to the research firm, Wessex Water is one of 10 regional water and sewerage businesses in England and Wales and has been consistently ranked as the best water and sewerage company, according to industry regulators.
Besides that, it has submitted its five-year business proposal (2025–2030) to the water services regulation authority (Ofwat), including a higher return and capex allocation of 3.5 billion pounds over the next five years, up from 1.4 billion previously.
"We understand that the significant spike is mainly driven by legal or regulatory requirements on river health-led measures and could result in a about 30 per cent increase in the average bill. The outcome is likely to be known by the end of the year," it said in a research report.
According to the research firm, water companies and government agencies in the UK are now re-evaluating strategies for water conservation and drought preparedness as the country has been experiencing more extreme weather in recent years.
It added that there are also long-term plans to ensure long-term water demand is met, especially when there is a requirement to reduce underground water supply by giving back the water to the environment for sustainable abstraction and preservation.
RHB Research said Wessex Water aims to get a future reservoir project in the upcoming regulatory review in 2031–2035.
"The Mendip quarries have been identified as a potential future reservoir site. The project is estimated to cost 1.1 pounds, but it is still in the development stage with no final investment decision to be made.
"Wessex Water will push through this project in the upcoming regulatory review in 2031-2035," it added.
RHB Research also said YTL Power is expanding its construction arm in the UK and sees a competitive advantage against its domestic peers by importing building materials from the Asian region.
Currently, the company is developing its first UK development project, Brabazon Bristol, which is a 153.8 mixed-use urban development. The first phase, known as The Hangar District, comprises 302 residential units apportioned to 127 landed and 175 apartment units.
The firm added that YTL Power is in the midst of delivering the next phase of 339 new homes in Brabazon.
The firm maintained its 'buy' call on YTL Power with an unchanged target price of RM6.68.